What We're Seeing: Hawkish Fed Stalls Rally – 16 December 2024

The Week in Brief

By mid-December, the rally began to stall. The S&P 500 briefly turned lower as Treasury yields jumped after hawkish Fed minutes, ending a multi-month advance. The minutes revealed that policymakers remain cautious about cutting rates too quickly, tempering some of the earlier optimism.

The move in yields was the catalyst. The 10-year rose 10 to 15 basis points on the week, pressuring equity valuations. Bond prices fell correspondingly, reminding investors that the path to easier policy is not guaranteed.

Sector Rotation

Defensive sectors outperformed during the week. Utilities and consumer staples attracted flows from investors seeking shelter from rate volatility. These areas had lagged for much of the year, and the shift suggests some repositioning ahead of 2025.

Technology and growth stocks cooled after their strong run. When yields rise, long-duration assets typically suffer, and that pattern played out. The Magnificent Seven gave back some gains, though the pullback was orderly rather than panicked.

Commodities

Oil prices rallied during the week, adding to inflationary concerns. Energy stocks benefited, but the broader market viewed higher oil as a headwind for consumer spending and corporate margins. The OPEC+ supply discipline continues to support crude, with prices holding well above year-ago levels.

Our Read

This feels like a pause rather than a reversal. The Fed minutes were a reality check, reminding investors that the path to rate cuts depends on the data. Inflation has improved, but it is not at target. Policymakers want to see more progress before easing aggressively.

We think the underlying trend remains intact. The economy is growing, earnings are holding up, and the Fed will eventually cut rates. But the timing is uncertain, and the market may need to recalibrate expectations in the near term.

For positioning, we are adding modestly to defensive exposure while maintaining our core holdings in quality growth names. The year-end period often brings volatility as portfolios are rebalanced and tax-loss selling occurs. We are using any weakness as an opportunity to upgrade holdings.

What Could Change Our View

Sustained pressure on yields would be concerning. If the 10-year pushes toward 5%, equity valuations would face a more serious headwind. We are also watching the January data releases closely: the first inflation prints of the new year will set the tone for the rate debate. A hot reading would extend the hawkish repricing.

This is informational commentary, not investment advice.