Monday Takeaways: The Year-End Rally Hits a Wall

Shah Gilani|December 30, 2024

Get ready for a volatile 2025…

The indexes are showing weakness… and the 10-year Treasury yield has climbed above 4.60% and is heading toward 5%.

There’s trouble ahead… with the market’s mega-cap tech concentration and Janet Yellen’s concerning comments about special accounting measures needed to avoid a debt ceiling crisis.

Nearly $1 trillion in annual government interest payments could reshape markets in 2025.

Tune in for your Monday Takeaways. Don’t miss what’s moving your money… NOW.

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Transcript

Hey everybody, Shah Gilani here with your Monday Takeaways.

Because it’s going to be a short week, I’ll keep this brief. Last week was shortened due to Christmas. Mid-week activity slowed, but the market trended upward as everyone anticipated the Santa Claus rally into year-end, which is today and tomorrow.

Wednesday is January 1st.

I believe the takeaway from last week is that the rally is over… for now. It can resume in the first quarter, but when everyone expected the week to close strongly, we saw an absolute collapse Friday on thin volume. The mega-cap leadership names and Nasdaq Composite were hit hard. Futures are down this morning.

The takeaway is uncertainty lies ahead. The strong benchmark performance we had in 2024 is behind us. 2025 promises to be volatile.

Why? Because no one knows where the Trump administration will take us. What will happen with tariffs and inflation? Looking at the bond market, investors’ gains have nearly evaporated with the 10-year Treasury yield heading above 4.60%. We’re heading toward 5%, which is another significant problem for stocks.

The concentration in mega-cap names is concerning. Nvidia is the most widely held stock globally. The rest of the Magnificent Seven are also widely held. The benchmarks have risen on these few names due to their capitalization weighting. There hasn’t been meaningful broadening out in 2024. The Russell index shows volatility and lacks the smooth ride seen in the Nasdaq Composite or S&P 500.

With an incoming Trump administration, whatever its final makeup, investors are nervous. Many are taking gains because of uncertainty. The bond market’s upheaval is problematic. The Federal Reserve is cutting interest rates, yet rates are rising.

If the 10-year reaches 5% and continues higher in the first quarter, this rally is finished.

Investors will question what’s happening regarding the deficit and national debt. Janet Yellen’s recent comments about special accounting maneuvers in mid-January to avoid breaching the debt limit spooked markets.

This raises questions about the government’s full faith and credit. While we’ll continue paying interest, at what cost? By late 2025, we’re looking at nearly $1 trillion annually in government interest payments on outstanding debt.

This is what investors are now focusing on. While it was a great year with 20%-plus benchmark returns, it wasn’t smooth. The volatility continues.

Back in October, I predicted a year-end rally with new benchmark highs, which proved correct. Last week, when asked about a Santa Claus rally, I said no – we’ve already had it. Friday proved that correct.

Can we turn around today with futures down significantly? I doubt it. The S&P is down 1.5% in premarket, and the Nasdaq is down 1.6%. As markets opened, these levels held – Nasdaq down 1.66% and S&P down 1.45% at almost 10 a.m.

The takeaway: be careful out there because volatility is back.

I’ll catch you next week. Happy New Year.