The U.S. stock market experienced a dip at the start of a holiday-shortened trading week, with the S&P 500 and Dow Jones Industrial Average both declining in choppy conditions. The trading environment was characterized by low volumes as investors navigated through a landscape shaped by recent government funding developments and shifting expectations regarding Federal Reserve interest rate cuts.
The Dow fell by 0.58%, while the S&P 500 saw a slight decrease of 0.09%. In contrast, the Nasdaq Composite managed to gain 0.27%, buoyed by strong performances from chipmakers and major technology stocks.
The recent passage of a stopgap government funding bill helped avert a potential U.S. government shutdown, providing some relief to investors. However, the market sentiment remained cautious as traders braced for a slower pace of rate cuts from the Federal Reserve in the coming year. Following a solid rally since the November presidential election, Wall Street faced headwinds this month, particularly after the Fed revised its forecast to indicate only two 25-basis-point rate reductions for 2025, down from an earlier expectation of four cuts. This shift, coupled with an increased annual inflation outlook, has contributed to a more tempered market atmosphere.
A cooler-than-expected inflation report released on Friday provided a brief respite for U.S. stocks, allowing them to recover some losses. Despite this, overall market sentiment remained cautious, as articulated by market strategist Thierry Wizman from Macquarie. Money markets are currently anticipating approximately two 25-basis-point reductions in 2025, which would adjust the benchmark rate to a range of 3.75% to 4.0%, a slight increase from the previous range of 3.50% to 3.75% noted two weeks prior.
Art Hogan, chief market strategist at B Riley Wealth, emphasized the lack of catalysts to drive broad market sentiment on this particular Monday. With trading volumes expected to thin further due to the upcoming holiday, volatility is likely to persist as investors navigate the final days of the year. U.S. stock markets are set to close early on Tuesday and will be shut for Christmas on Wednesday, further contributing to the subdued trading environment.
In sector-specific movements, Qualcomm's shares rose by 1.7% following a jury ruling that affirmed the company's central processors are properly licensed under an agreement with UK-based Arm Holdings. Conversely, Arm's shares fell approximately 5% as the company announced plans to seek a new trial. Meanwhile, pharmaceutical giant Lilly saw gains after receiving approval for a weight-loss drug aimed at treating sleep apnea, reflecting the ongoing interest in health-related stocks.
On the downside, Walmart's stock dropped by 3.3% after the U.S. consumer finance watchdog accused the retail giant and workforce payments company Branch Messenger of compelling over a million delivery drivers to use accounts that incurred more than $10 million in junk fees. This development highlights the ongoing scrutiny faced by large corporations regarding their business practices and consumer treatment.
As trading progressed, declining issues outnumbered advancers on both the New York Stock Exchange and the Nasdaq, with a ratio of 2.56-to-1 and 1.91-to-1, respectively. The S&P 500 recorded two new 52-week highs and 11 new lows, while the Nasdaq Composite noted 35 new highs and 86 new lows, indicating a mixed performance across the indices.
As the market enters a historically strong period for U.S. stocks, traders are eyeing the last five trading days of the year combined with the first two of the following year, a timeframe often referred to as the "Santa Claus Rally." According to the Stock Trader's Almanac, this period has historically yielded an average S&P 500 gain of 1.3% since 1969, suggesting potential for upward momentum despite current market challenges.
The interplay of government policy, inflation expectations, and corporate performance will continue to shape market dynamics as the year draws to a close. Investors are likely to remain vigilant, monitoring economic indicators and Federal Reserve communications closely, as they position themselves for the upcoming year. The cautious sentiment observed in recent trading sessions underscores the complexities of navigating the current financial landscape, where both opportunities and risks abound.