Market Commences Final Week of 2024 with Profit-Taking and Lower Trading

The week kicks off on Wall Street with a slightly negative tone as investors seize recent gains amid concerns regarding forthcoming Federal Reserve actions and a pullback in Bitcoin’s value.

Insights into Federal Reserve Rate Forecasts

Following a recent meeting, the Federal Reserve executed a quarter-point rate reduction, totaling a one-percentage-point decrease since September. Despite this adjustment, the Fed’s perspective for 2025 remains cautious, with a shift from the previously anticipated four cuts down to an outlook of two for the upcoming year according to 15 out of 19 officials. Concerns are mounting about potential inflation surpassing estimates, with core PCE inflation expected to hit 2.5% by early 2025—exceeding the Fed’s 2% target.

Goldman Sachs predicts the next rate decrease in March 2025, followed by similar cuts in June and September. Geopolitical shifts, particularly related to U.S. trade policies and tariffs on China, present ongoing risks for investors. Important economic data, including weekly unemployment statistics and retail sales figures, is due for release later this week.

Year-End Profit-Taking Impact on U.S. Futures

Profit-taking activities ahead of the year-end are influencing U.S. stock futures, with declines observed on Monday. At 03:45 ET, Dow futures dropped by 85 points (0.2%), while the Nasdaq and S&P 500 also experienced slight decreases. The major indices are on track to wrap up 2024 near record highs, boasting significant annual gains—surpassing 25% for the S&P 500, over 14% for the Dow, and an impressive 31% for the Nasdaq. As the market heads towards the holiday break on Wednesday, it is expected to maintain a subdued rhythm.

Positive Shift in Japanese Manufacturing Sector

Recent data from Japan signals a deceleration in the contraction of factory operations. A private-sector survey unveiled that the au Jibun Bank PMI increased to 49.6 in December, inching close to the growth-contraction threshold of 50 after November’s reading of 49.0. The Bank of Japan opted to maintain interest rates at 0.25% earlier this month as Governor Kazuo Ueda seeks more insights into U.S. economic policies under the forthcoming administration. Nonetheless, some policymakers point to favorable conditions for a potential rate hike as signs of economic revival emerge.

Bitcoin’s Challenges Amid Overall Optimism

Bitcoin encountered pressure on Monday due to reduced year-end trading, compounded by rising U.S. Treasury yields following the Fed’s hawkish stance. The cryptocurrency dipped by 1.6% to $93,817, marking a 4% decrease for the month from its peak above $108,000 on December 17. Despite the current setback, Dan Morehead, founder of Pantera Capital, maintains a positive outlook, foreseeing substantial growth for Bitcoin in the next few years, potentially reaching a market capitalization of $15 billion by 2028. He asserts that the asset’s strong performance and integration into broader economic and technological frameworks are driving its value.

Oil Price Decline Amid Demand Concerns

Crude oil prices experienced a slight drop on Monday as holiday trading volumes remained low. At 03:45 ET, West Texas Intermediate (WTI) futures decreased by 0.4% to $70.34 per barrel. Despite significant gains in 2024, both WTI and Brent contracts are facing notable losses, with WTI down by about 1.5% and Brent seeing a decline exceeding 4%. Growing worries about weakened demand in China, the world’s largest oil consumer, have escalated alongside projections of slower demand growth. Investors are closely monitoring China’s industrial sector PMI release on Tuesday for indications of its economic recovery trajectory.

Concluding Remarks

In conclusion, the lower trading on Wall Street at the commencement of the week highlights investors’ cautious stance on profit-taking. Factors such as the Fed’s forthcoming rate cuts, Bitcoin’s volatility, and ongoing economic developments in Japan and China signify crucial points to watch as the year wraps up. Market movements in the upcoming months are likely to be influenced by essential economic indicators and geopolitical shifts, showcasing the intricate connections between global markets and local economic dynamics.