The US stock market ended the shortened Christmas Eve trading session with a notable rally, hinting at a potential “Santa Claus” rally. The S&P 500 (^GSPC) climbed 1.1%, the tech-focused Nasdaq Composite (^IXIC) surged 1.4%, and the Dow Jones Industrial Average (^DJI) advanced nearly 0.9%. Markets closed early at 1 p.m. ET and remained closed for Christmas Day.
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This positive momentum, driven by gains in tech stocks like Nvidia (NVDA), follows a week of fluctuating market performance and sets a positive tone for the holiday period. The recent surge places the major indexes back on track towards their previous record highs, recovering from the Fed-induced dip experienced last week.
Analyzing the Market Rebound and Potential for a Santa Claus Rally
The market’s recent rebound prompts a reevaluation of the interest rate trajectory for the upcoming year. While the Federal Reserve seemingly achieved a soft landing, inflation persists as a concern. The CME FedWatch tool suggests a high probability of two holds on interest rates at the Fed’s January and March meetings, with uncertainty surrounding the May meeting.
Nvidia (NVDA), a key player in the tech sector, continued its upward trend with another gain on Tuesday, following a 3.5% increase on Monday. While 2024 has been a remarkable year for Nvidia, with its stock soaring approximately 180%, the coming year may present challenges.
Inflation Concerns Linger as Markets Look Ahead to 2025
Despite the market rally, concerns regarding inflation remain prevalent. Experts anticipate a gradual deceleration in inflation but acknowledge its persistence at levels that are still considered high by the Federal Reserve. Core inflation, excluding volatile food and energy costs, remains a focal point. The November core Personal Consumption Expenditures (PCE) index and the core Consumer Price Index (CPI) registered year-over-year increases of 2.8% and 3.3%, respectively, still exceeding the Fed’s 2% target.
The service sector, particularly core services like healthcare, insurance, and airfares, is expected to be a primary driver of inflation. Shelter inflation, although projected to decline, may remain elevated. The Federal Reserve’s updated economic projections indicate a core inflation rate of 2.5% for the next year, higher than the previous forecast of 2.2%.
Other Notable Market Developments on Christmas Eve
Beyond the broader market trends, several noteworthy developments unfolded on Christmas Eve:
Spotify’s Remarkable Turnaround: Spotify (SPOT) has experienced a significant resurgence, with its stock price soaring to nearly $500 per share after trading below $80 at the end of 2022. This turnaround follows a comprehensive business restructuring, including layoffs, leadership changes, and a shift in strategy.
Biden’s Decision on US Steel Sale: President Biden is poised to determine the outcome of Nippon Steel’s $15 billion bid for US Steel (X). The Committee on Foreign Investment in the US (CFIUS) referred the decision to the President after failing to reach a consensus.
Bitcoin’s Surge: Bitcoin (BTC-USD) prices rose over 5% to surpass $98,000 per coin, maintaining positive momentum despite recent fluctuations.
A Positive Start to the “Santa Claus” Rally Period
The Christmas Eve rally aligns with the historical pattern of the “Santa Claus” rally, which typically encompasses the last five trading days of December and the first two trading days of January. While the early closure limited trading activity, the positive performance across major indexes suggests a promising start to this traditionally bullish period.
The strong performance of sectors like Consumer Discretionary (XLY), Energy (XLE), and Tech (XLK) further underscores the positive market sentiment heading into the holiday season. This initial uptrend sets the stage for continued observation as the market resumes trading after the Christmas holiday.
