Market Minute: Equities are in a Holding Pattern to Start the Year

Market sentiment is bullish and expectations for another exceptional year of gains in the broad equity market are high. Despite a sell-off of around 2.5% in December, the broad S&P 500 index ended 2024 up 23%, following a 24% gain in 2023, marking its best two-year run of performance this century since the late nineties dot com boom in 1997 and 1998. Markets appear to be in a holding pattern until new incoming economic data next week starting with ISM services next Tuesday, FOMC meeting minutes on Wednesday, and the December labor market report on Friday, January 10th. 

Overall selling of equities in December may have simply been the result of profit-taking as institutional investors recalibrated risk within portfolios at the end of a great year for equities. Other challenges investors had to contend with in late 2024 include adjustments toward less monetary accommodation by the Fed this year as well as higher inflation expectations, and policy uncertainty from the incoming Trump administration.  

Regardless, bullish investors are overlooking elevated valuations across broad market considering that ‘Big Tech’s’ earnings growth and weight in the overall equity space remains robust. While S&P earnings have been strong, prices may have surpassed earnings growth to such a degree that the forward performance of the S&P500 may be substantially lower this year. Another 20% gain in equities this year is certainly possible, yet not highly probable.