Daily market snapshot

• Stocks rise amid higher bond yields – Equity markets rose on Wednesday, with large-cap stocks leading small- and mid-cap stocks. Sector performance was broadly higher, as health care and materials stocks posted the largest gains. In global markets, Asia was mixed as China's yuan currency dropped to a 16-month low versus the U.S. dollar, driven by lower bond yields and tariff concerns. Europe was mostly lower as economic confidence for December missed estimates. The U.S. dollar extended its rise versus major currencies. In the commodity space, WTI oil dropped on higher U.S. fuel inventories*.
• Bond yields edge lower – Bond yields took a pause from their recent trend higher, with the 10-year U.S. Treasury yield at 4.68%. The benchmark yield briefly reached 4.72% this morning, its highest since 2023 and more than 100 basis points (1.0%) above the recent low in September 2024*. Bond markets have dialed back expectations for cuts to the fed funds rate as disinflation has slowed, with core personal consumption expenditure (PCE) inflation at about 2.8%, above the Fed's target of 2.0%. We expect the Fed to be able to cut interest rates, though at a slower pace, as shelter inflation should continue to moderate gradually throughout 2025.
• New labor market data shows slower job growth, fewer unemployment claims – The ADP employment survey showed that private sector employment (excluding government workers) grew by 122,000 in December, below estimates for 140,000* and the average monthly gain of about 150,000 over the past 12 months*. Annual pay was up 4.6% year-over-year**. Initial jobless claims dropped to 201,000 this past week, below estimates calling for about 215,000*. Continuing claims, which measure the number of people receiving unemployment benefits, ticked up to 1.87 million, above expectations for 1.85 million, indicating that people are staying on unemployment slightly longer. These readings reflect a resilient labor market that is normalizing, as employers appear to be slowly pulling back on hiring but not turning to significant layoffs, in our view. We believe this is supportive of economic growth and the soft-landing narrative.

Brian Therien, CFA
Investment Strategy

^{Source: *FactSet ** ADP}

• Stocks waver on strong economic data: Equity markets finished lower on Tuesday, reversing gains at the open, following a batch of strong economic data that sent bond yields higher. The ISM services PMI for December was 54.1, better than expectations of 53 and signaling ongoing strength in the services sector of the U.S. economy.* The fly in the ointment from today's report was that the prices subindex rose to a near two-year high of 64.4, raising concerns on the future path of inflation. JOLTS job openings also exceeded expectations, with job openings for November rising to 8.1 million versus expectations for 7.7 million, signaling that demand for labor remains strong.* In response, bond yields surged higher, with the 10-year Treasury yield climbing to nearly 4.7%.* Stocks declined, with the S&P 500 lower by roughly 1.1%, while the Nasdaq closed down by 1.9%.* Growth sectors of the market, such as technology and consumer discretionary, were among the laggards, while defensive sectors, such as health care, fared better. Energy was another sector outperforming, supported by higher oil prices, which are at their highest since October.
• Jobs data in focus: A busy week of labor-market data began this morning with the release of JOLTS job openings for November. Job openings for November were 8.1 million, above expectations for 7.7 million and above the October reading of 7.8 million.* While well below the peak of 12 million job openings in March of 2022, 8.1 million job openings are still above pre-pandemic numbers.* Additionally, U.S. job openings exceed the number of unemployed (7.1 million), which, in our view, suggests that while labor-market conditions have moderated from historically strong levels, they remain healthy.* Perhaps the most anticipated data will come on Friday with the release of nonfarm payrolls and the unemployment rate for December. Expectations are for nonfarm payrolls to rise by 160,000 in December, while the unemployment rate is expected to hold steady at 4.2%.* Healthy labor-market conditions have been a source of strength for the U.S. economy over the past two years. In our view, labor-market conditions will remain broadly supportive in 2025, helping extend the economic expansion.
• We expect balanced performance between growth and value stocks in 2025: Growth-style stocks outperformed value stocks for the second consecutive year in 2024, with the Russell 1000 Growth Index rising by 33% including dividends, versus 14% for the Russell 1000 Value Index.* Robust earnings growth and enthusiasm around the potential of artificial intelligence has driven the outperformance in growth stocks in recent years. While we acknowledge reason for optimism in growth stocks, we believe opportunities are emerging that could lead to more balanced performance between growth- and value-style stocks in 2025. Specifically, profit growth is expected to not only be strong in mega-cap tech stocks (which comprise a large portion of the Russell 1000 Growth Index), but also in value-style stocks. In fact, analyst expectations are for earnings in the Russell 1000 Value Index to grow by roughly 12% in 2025, which, if achieved, would be the strongest earnings growth since 2021.* Additionally, value stocks tend to generate a higher share of their revenue from domestic sources compared with growth stocks.* This could make value stocks less sensitive to trade policy uncertainty over the coming months. As part of our opportunistic portfolio guidance, we recommend a neutral allocation between growth and value stocks. To view our entire suite of portfolio guidance, check out our Monthly Portfolio Brief.

Brock Weimer, CFA
Investment Strategy

^{Source: *FactSet 
Growth stocks represented by the Russell 1000 Growth Index. 
Value stocks represented by the Russell 1000 Value Index. 
Sector references are GICS sectors of the S&P 500.}

• Stocks rise to begin the week: Major equity markets were mostly higher on Monday. From a leadership standpoint, growth sectors, such as technology and communication services, led markets higher. Defensive sectors, such as utilities and consumer staples, were among the laggards, along with the interest-rate-sensitive real estate sector.* Overseas, Asian markets were lower overnight, while European markets traded higher following reports surfacing that President-elect Trump's universal tariff proposal could be limited to critical industries such as steel and aluminum.* This contrasts with initial talks that the universal tariffs would be applied to all imported goods. However, shortly after the news surfaced, Trump disputed the report on social media, saying it was wrong. Despite Trump's dispute, the U.S. dollar index was weaker by roughly 0.6% in response to the potential for dialed-back tariff plans. Bond yields ticked higher, with the 10-year Treasury yield back above the 4.6% mark, while the 2-year yield closed around 4.27%.*
• Busy week of labor-market data ahead: Labor-market data will be front and center for markets beginning tomorrow with JOLTS job openings for November. Expectations are for job openings to remain roughly unchanged at 7.7 million. While well below the peak of 12 million job openings in March of 2022, 7.7 million job openings are still above pre-pandemic levels.* Wednesday will bring the ADP Employment Survey for December, where expectations are for private employers to have added 140,000 jobs for the month.* Perhaps the most anticipated data will come on Friday with the release of nonfarm payrolls and the unemployment rate for December. Expectations are for nonfarm payrolls to rise by 160,000 in December, while the unemployment rate is expected to hold steady at 4.2%.* Healthy labor-market conditions have been a source of strength for the U.S. economy over the past two years. In our view, labor-market conditions will remain broadly supportive in 2025, helping extend the economic expansion.
• European economic data points to ongoing weakness: Markit PMI data for December suggest the eurozone economy is entering 2025 on soft footing. The PMI is a diffusion index, where readings above 50 signal economic expansion and readings below 50 signal contraction. The eurozone composite PMI was 49.6 in December, the second month in a row of contraction and the seventh consecutive month below the 20-year average of roughly 52.* Higher interest rates and higher energy costs following Russia's invasion of Ukraine have weighed on economic activity in the eurozone, particularly in the manufacturing sector. While energy costs have fallen, the headline producer price index in the eurozone remains nearly 40% higher today than in December 2020.* We expect economic momentum in Europe to lag the U.S. in 2025. As part of our opportunistic asset-allocation guidance, we recommend investors underweight developed international large-cap and developed international small- and mid-cap stocks, while offsetting these underweights with an overweight to U.S. large- and mid-cap stocks.

Brock Weimer, CFA
Investment Strategy

^{Source: *FactSet 
Sector references are GICS sectors of the S&P 500.} 

• NASDAQ leads stocks higher – Equity markets broke their losing streak on Friday, with small-cap stocks leading large- and mid-cap stocks. Sector performance was broad, as consumer discretionary and technology stocks posted the largest gains, reflecting a risk-on tone. In global markets, Asia was down on continued growth concerns in China. Europe was also lower, led by automotive stocks as some electric vehicle (EV) models failed to qualify for U.S. tax credits under new, stricter rules. The U.S. dollar declined versus major currencies. In the commodity space, WTI oil traded higher, while gold was down*.
• Manufacturing reading beats estimates – The Institute for Supply Management (ISM) Manufacturing Purchasing Managers' Index (PMI) rose to 49.3 in December, above forecasts calling for 48.4*. PMI is a diffusion index, with readings above 50.0 reflecting expansion. While December's figure still shows modest contraction, the trend has improved in recent months, rising from the recent low of 46.5 in October. In addition, services PMI, which represents the majority of the economy, reflects expansion. This is supportive of resilient economic growth and the soft landing narrative, in our view.
• Bond yields edge higher – The 10-year Treasury is yield was up at 4.60%, extending its broader trend higher over the past few months. The benchmark yield has risen more than 90 basis points (0.9%) from the recent low in September as bond markets** and the Federal Reserve*** have reduced expectations for cuts to the fed funds rate. Markets are now pricing in just one additional interest rate cut in 2025 as disinflation has slowed and labor markets remain resilient. With the fed funds rate now around 4.5% and core personal consumption expenditure (PCE) inflation around 2.8%, we believe there is room to bring interest rates down to a less restrictive policy stance, perhaps settling in the 3.5% to 4% range. Lower rates should reduce borrowing costs for business and consumers, which is typically favorable for the economy.

Brian Therien, CFA
Investment Strategy

^{Source: *FactSet **CME Fedwatch ***U.S. Federal Reserve}

• Stocks edge lower to start the year – Equity markets closed lower on Thursday, reversing gains from earlier in the day. Global markets were mixed, as Asia was down on new data for December showing that manufacturing slowed in China. Europe was mostly higher, led by energy stocks. Bond yields dropped, with the 10-year Treasury yield at 4.56%. The U.S. dollar continued its rise versus major currencies. In the commodity space, WTI oil and gold traded higher*.
• Jobless claims tick down: Initial jobless claims dropped to 211,000 this past week, below estimates calling for about 220,000*. Weekly jobless claims averaged about 223,000 over the past month, which is about in line with the weekly average for 2024, indicating that the trend appears to be stable. In addition, continuing claims, which measure the number of people receiving unemployment benefits, declined to 1.84 million, below expectations for 1.89 million. We believe these readings, combined with other recent data, reflect a resilient labor market that is gradually normalizing, as employers appear to be slowly pulling back on hiring but not turning to significant layoffs. With unemployment of 4.2%, well below the long-term average of about 5.7%*, disposable income should be sufficient to support consumer spending. A cooling labor market should also lead to slower wage gains ahead, which typically help ease inflation.
• Manufacturing readings beat estimates – The Markit Manufacturing Purchasing Managers' Index (PMI) rose to 49.4 in December**, above forecasts and the preliminary reading, both of which were about 48.3*. PMI is a diffusion index, with readings above 50.0 reflecting expansion. While December's figure still shows modest contraction, the trend has improved in recent months, rising from the recent low of 47.3 in September. In addition, services PMI, which represents the majority of the economy, reflects expansion, which is supportive of resilient economic growth and the soft landing narrative, in our view.

Brian Therien, CFA
Investment Strategy

^{Source: *FactSet **S&P Global}