Daily market snapshot

• Stocks tick lower on final trading day of 2024: Equity markets finished lower on Tuesday with the S&P 500 declining by 0.4% and the NASDAQ shedding 0.9%* From a leadership standpoint, energy was the top performing sector of the S&P 500, supported by a spike in oil prices, while growth sectors such as technology and consumer discretionary were among the laggards.* Despite finishing lower in each of the last four trading sessions, the S&P 500 finished the year up by 23%, marking the second consecutive year with returns over 20%.* Overseas, Asian markets were mostly lower overnight while European markets traded higher. Longer-term bond yields ticked higher with the 10-year Treasury yield rising to 4.57% while the 2-year Treasury yield was little changed at 4.24%.* In the commodity space, oil prices rose by over 1% while gold finished higher by 0.8%.*
• Bonds deliver positive returns in 2024: U.S. investment-grade bonds are on pace for another year of positive returns in 2024, with the Bloomberg U.S. Aggregate Index higher by 1.4% through yesterday's close.** This year's return follows a healthy 5.5% return in 2023, however the index remains roughly 9% below its all-time high achieved in August 2020.** In our view, elevated yields relative to history should lead to healthy returns from investment-grade bonds in the years ahead. Looking around the horn, international bonds are set for 4.9% gain in 2024 while cash is on pace to close higher by 5.3%.** Lower-quality issuers have been the top performers in 2024, with high-yield bonds on pace for an 8.2% gain while emerging-market debt is higher by 6.6%.**
• Housing price data in focus: Housing-market data was back in focus on Tuesday with a read on home price trends in October. The S&P/Case-Shiller National Home Price Index rose by 0.3% in October and 3.6% on an annual basis.* The FHFA Home Price Index rose by 0.4% in October and 4.5% on an annual basis.* Despite higher borrowing costs, home prices have proven resilient with both the S&P/Case-Shiller and FHFA Indexes at all-time highs. In our view, this has been in part due to low inventory levels of existing homes for sale as homeowners have been reluctant to sell their homes and forfeit a mortgage rate which was locked in prior to 2022. Additionally, healthy labor-market conditions and strong household balance sheets have likely helped put a floor on housing demand over the past two years, supporting prices. We'd expect home prices to continue to rise at a pace roughly consistent with wage growth over the coming years, perhaps in the 3%-4% range.

Brock Weimer, CFA
Investment Strategy

^{Source: Morningstar Direct, Total return through 12/31/2024.}

Monday, 12/30/2024 p.m.

• Stocks slide to start the week: Equity markets closed lower on Monday, with the S&P 500 finishing down 1.1%.* Today's move follows a risk-off trading session on Friday, when both the S&P 500 and Nasdaq fell by over 1%. Today's move lower was broad-based, with all 11 sectors of the S&P 500 finishing the day in negative territory.* With no key corporate or economic news out over the past two trading sessions, we'd chalk up the risk-off move in markets to profit-taking and rebalancing from investors after what's been another strong year of equity-market performance. Overseas, Asian markets were mixed overnight, while European markets traded mostly lower. Bond yields finished the day lower, with the 10-year Treasury yield falling to around the 4.54% mark, while the 2-year Treasury yield closed down to 4.26%.*
• U.S. equities led the way in 2024: It’s been another strong year of equity-market performance in U.S. stocks, with the S&P 500 higher by nearly 27%, including dividends, through Friday's close.** U.S. small- and mid-cap stocks have seen strong returns as well, with the Russell 2000 and Russell Mid-cap Indexes each higher by 12% or more.** International equity markets have struggled to keep pace, with the MSCI EAFE Index (which measures developed international large-cap stocks) up by a modest 5%, while the MSCI EM Index (which measures emerging-market stocks) has gained roughly 8.8%.** Strong economic momentum and corporate profit growth in the U.S. has supported the year-to-date outperformance in U.S. stocks. Additionally, a stronger U.S. dollar, particularly in the past few months, has meaningfully weighed on returns for international equities. As part of our opportunistic allocation guidance, we favor U.S. stocks over international developed stocks, and we believe 2025 will bring another year of U.S. outperformance.
• Housing-market data in focus: Today provided a look into trends in the U.S. housing market, with pending home sales for November. Pending home sales measure housing activity based on real estate contracts for existing single-family homes, condos and co-ops and can serve as a leading indicator for existing home sales.* The pending home sales index rose to 79 in November, better than expectations and the highest reading since February 2023.* However, the index remains well below the long-run average of roughly 102.* Elevated interest rates have weighed on housing-market activity over the past two years. Higher interest rates not only make the cost of financing a new home more expensive due to higher interest payments, but also make it less attractive for existing homeowners to sell their homes and forfeit a lower interest rate on their existing mortgage if it was originated prior to 2022. As the Fed continues to normalize policy, we expect that housing-market activity should improve over the coming year.

Brock Weimer, CFA
Investment Strategy

^{Source: *FactSet **FactSet, Total return in USD through 12/27/2024.}

• Stocks finish lower: U.S. equity markets closed lower on Friday with weakness in mega-cap technology stocks weighing on market performance. The S&P 500 finished lower by 1.1% while the tech-heavy NASDAQ declined by 1.5%.* U.S. small-cap stocks were under pressure today as well with the Russell 2000 declining by over 1.5%.* With no major corporate or economic news out today, we'd attribute the risk-off move to profit taking after what's been a strong year of stock market performance. Asian markets were mixed overnight with Japan's Nikkei logging a 1.8% gain while markets in China were flat. Longer-term bond yields finished higher with the 10-year Treasury yield closing above the 4.6% mark while the 2-year yield was little changed at 4.33%.*
• Bond yields holding near highs for the year: The 10-year U.S. Treasury yield rose again on Friday, finishing above the 4.6% mark. Since the Fed delivered a 0.5% interest-rate cut on September 18, the 10-year yield has risen by nearly 1%.* Healthy U.S. economic data and uncertainty around inflation have accompanied the move higher in yields.* In response, performance of investment-grade bonds has been lackluster. Through September 18, the year-to-date return of the Bloomberg U.S. Aggregate Bond Index was 4.7%.* With yields spiking, the index has given back most of its prior gain, and is now up only 1.2% year-to-date.* Looking ahead, we expect the 10-year Treasury yield to spend most of 2025 in the 4% - 4.5% range. In our view, Fed rate cuts should prevent yields from rising much above the 4.5% mark while healthy economic growth and uncertainty over inflation and widening deficits should prevent yields from falling much below the 4% mark.
• Performance check-in; Growth sectors in the lead: It's been another strong year of performance for U.S. equity markets with the S&P 500 higher by over 28% including dividends through yesterday's close.* At a sector level, it's been familiar faces driving the gains for the S&P 500. Communication services and information technology have been the top performing sectors in 2024, each higher by over 40%.** Consumer discretionary has been the next best performer, gaining 36%.* These three sectors were the top performers in 2023 as well. Enthusiasm around the growth potential of AI and robust corporate profit growth has led to strong performance in U.S. mega-cap tech stocks over the past two years. While we acknowledge there are reasons for optimism in this area of the market, we believe market leadership could broaden in 2025 beyond mega-cap tech stocks. In particular, profit growth in value-style stocks is expected to accelerate in 2025 after a period of lackluster growth. Additionally, value-style stocks tend to generate a higher percentage of revenue from U.S. sources, potentially making them less sensitive to trade-policy uncertainty. In our view, this creates a favorable backdrop for broad participation in equity markets over the coming year, potentially rewarding those with well-balanced portfolios.

Brock Weimer, CFA
Investment Strategy

^{Source: *FactSet **FactSet, GICS sectors of the S&P 500. Total return through 12/26/2024.}

• Stocks close little changed – Stocks closed near the flatline on Thursday but remain firmly in positive territory for the holiday-shortened week. It was a quiet day in terms of economic and corporate news with most sectors of the S&P 500 finishing the day near the flatline.* Overseas Asian markets were mostly higher overnight while most European markets are closed for the Boxing Day Holiday.* Bond yields were little changed as well with the 10-year Treasury yield closing the day at 4.58%.* In the commodity space, oil prices fell by 0.8% while gold rose by 0.7%.*
• Initial jobless claims remain contained – Initial jobless claims for last week were 219,000, below expectations for 223,000 and little changed from the prior reading of 220,000.* Continuing claims ticked slightly higher to 1.9 million versus the prior reading of 1.86 million.* In 2024, initial jobless claims have averaged 223,000, roughly in line with the 2023 average of 222,000 but well below the 30-year average of nearly 370,000, highlighting that labor-market conditions remain healthy.* In our view, labor-market conditions could moderate over the coming year, however, we expect conditions to remain supportive to consumer spending, helping extend the economic expansion.
• Stocks on pace for another year of strong returns – Through Tuesday's close the S&P 500 has returned over 28% including dividends in 2024.* This year's return follows a 26.3% gain in 2023 and if the current gain holds, would mark the first time since 1999 that the S&P 500 has returned 20% or more in back-to-back years. Since 1940 there have been nine occasions when the S&P 500 returned 20% or more in consecutive years. Of those nine occasions, returns were positive in the third year seven out of nine times with an average return of 13%.** While there is no guarantee history will repeat itself, we believe the fundamental backdrop is supportive for the current bull market to continue into year three. As we outlined in our Annual Outlook, we expect returns to moderate in 2025 but expect stocks to finish the year higher.

Brock Weimer, CFA
Investment Strategy

^{Source: *FactSet **Morningstar Direct, Edward Jones Calculations}

• Stocks rise ahead of the holiday – Investors returned to a festive mood, with equities rising ahead of the Christmas holiday tomorrow. Trading was quiet with markets closing early and the tech-heavy Nasdaq added to yesterday's outperformance. Shares of American Airlines pared some of their earlier losses as the company briefly grounded U.S. flights due to a technical issue. Treasury yields rose for the second day with the 10-year at 4.6%, the highest since May*. The recent rise in U.S. yields is helping keep the dollar firm against other currencies.  Elsewhere, several European markets were closed but France's CAC rose after new prime minister vowed to cut budget gap.
• The 10-year yield edges near the high of the year - Last week's Fed decision and updated projections were a catalyst for a shift higher in interest rate expectations as policymakers now see fewer cuts in 2025. The economy continues to perform well and there is some uncertainty around how fast inflation will return to target, which is why the Fed is in no rush to cut rates. With days left to end the year, cash has outperformed U.S. investment-grade bonds for the third time in the past four years*. However, the Fed easing cycle will continue in 2025 and cash yields are already below bond yields, which sets up bonds well to outperform cash in our view next year. 10-year yields might spend most of 2025 in the 4% to 4.5% range as we believe there are guardrails on both sides. Additional Fed rate cuts and bond purchases should help keep yields from rising meaningfully. On the other hand, resilient growth, widening deficits and uncertainty around inflation could prevent yields from sustainably falling much further.
• Another strong year despite a bumpy end - Despite the December pullback, stocks remain on track to post more than 20% gains for the second consecutive year*. The Magnificent 7 stocks accounted for more than half of the S&P 500's advance, though market breadth improved in the second half of the year*. We think solid fundamentals will extend the bull market into 2025, but volatility will likely pick up as investor sentiment is heating up. We expect earnings growth to do the heavy lifting for market returns instead of further valuation expansion, implying slower gains but still positive returns. And despite the narrow gains over the past two years, we see scope for market leadership to broaden beyond the mega-cap tech. While we recommend keeping expectations about returns realistic, there are reasons to be optimistic about the investment outlook for the year ahead. Economic growth remains healthy, corporate profits are on the rise and central bank policy is becoming less restrictive.

Angelo Kourkafas, CFA
Investment Strategy

^{Source: *FactSet}