Fasten Your Seatbelts, It's Going to Be an Unusually Bumpy December
Here's why end-of-the-year markets will likely be different this time.
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The month of December is well known for positive seasonality, but regardless of how it turns out, it is very likely that there will not be a slow and steady uptrend in 2024. The end of the year tends to produce positive sentiment, but tax planning and positioning for next year are major wildcards that produce enhanced volatility, especially after the big run many stocks have already enjoyed.
December 2024 has several other factors that are likely to produce some big swings. The first issue is the Federal Open Market Committee’s interest rate policy decision on December 18. Currently, the market sees about a 61% chance that the Fed will cut rates by a quarter point, but the debate over inflation and economic growth has been building, and there is now a large group of economists that would not be surprised if there is no cut this month.
The economic debate will be influenced greatly by expectations for the incoming Trump administration. Tariffs are a central issue that are viewed as highly inflationary by some folks and a strategic economic tool by others. The dollar has pulled back after ripping higher following the election and will have a major impact on economies around the world.
No one knows for sure what will happen when Trump takes office on January 20, but there is going to be plenty of speculation and news flow in December that will produce bouts of volatility. Political bias will likely fuel dire predictions as well as hopes of a new age of economic success.
In addition to interest rates and politics, there are aggressive valuations and extended technical conditions to deal with. The main market theme recently has been a rotation out of the Magnificent Seven MAGS and into the broader market and small-caps in particular. However, it has been increasingly overheated, and there is now some cooling in more speculative names and the Bitcoin-related group as well.
While the swirling macroeconomic issues will cause increased volatility, that may be helpful for stock pickers who are looking for good entry points. Many small stocks have been waking up after multi-year slumbers, although many have run very hot and don’t offer prudent entry points. I’ll be focused on trading these secondary names. I will also be looking for some rebound in the Magnificent Seven names as they regain some of their reputation as safe harbors going into earnings in January.
While December has a tendency toward positive action, economic news, the Fed, and end-of-the-year tax planning and positioning are going to make for a bumpy ride.
At the time of publication, Rev Shark had no positions in any securities mentioned.
