As December Begin, S&P 500 Prepares to Make History and Wall Street Awaits Jobs Data

The final trading month of 2024 is set to begin, offering one last opportunity to solidify what has been a remarkable rally for U.S. stocks this year. Investors also await a crucial jobs report that could influence market sentiment and Federal Reserve decisions as the year wraps up.

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With stocks hovering near or at record highs, optimism remains strong among market participants, who see no immediate barriers to further gains. Despite concerns over elevated valuations and signs of overenthusiasm, the prevailing sentiment is supported by a resilient macroeconomic environment and optimistic earnings projections.

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Seasonal trends further bolster the bullish outlook. December has historically been the best-performing month for the S&P 500, characterized by relatively low volatility. According to Sam Stovall, chief investment strategist at CFRA Research, data going back to 1945 reveals that the S&P 500 typically gains an average of 1.6% in December, rising in price over 75% of the time.

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Stovall humorously compared this phenomenon to Santa Claus, saying, “Like something out of Santa Claus, you could say, ‘on Dasher, on December,’ because December continues to dash ahead, normally.”

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With the S&P 500 already up 26% this year, even a typical December gain could elevate 2024 to one of the best-performing years in history. Over the past half-century, the index has only achieved annual gains exceeding 27% on six occasions, according to FactSet.

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However, investors will need to navigate several uncertainties in the coming weeks, including a flurry of economic data releases and questions surrounding the policy direction of the incoming administration. Stovall cautioned against excessive optimism, noting, “While you can’t really time the market with those kinds of valuations, I think you say to yourself, do I really want to be backing up the truck right now?” He added that a period of consolidation or even a correction may be necessary for the market to align with earnings and sales growth or to return to more reasonable valuations.

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In November, the Dow Jones Industrial Average surpassed 44,000 for the first time, while the S&P 500 crossed the 6,000 mark. As of now, all three major indices are within 1% of record highs. November closed on a strong note, with all three indexes gaining more than 5% for the month.

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One of the most closely watched events in the week ahead is the release of the November jobs report on Friday. This data will provide the final significant insight into the labor market before the Federal Reserve’s policy meeting on December 17-18, which will likely shape decisions on interest rates.

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Investors are hoping for a balanced report that indicates steady labor market growth while showing signs of moderation, a combination that could encourage the Fed to continue easing rates. According to FactSet's consensus estimate, the report is expected to reveal a substantial gain of 177,500 jobs in November, a sharp recovery from the mere 12,000 jobs added in October. The October figure was largely dismissed as an anomaly due to weather-related disruptions.

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The unemployment rate, however, is anticipated to edge up to 4.2% from the previous 4.1%, based on FactSet’s projections. Such data could bolster market expectations for a December rate cut. Although expectations for a rate reduction at the upcoming meeting had diminished in recent weeks, the latest inflation and GDP figures have renewed hopes for monetary easing. Currently, markets are pricing in a 67% probability of a 0.25% rate cut at the December meeting, as indicated by the CME FedWatch Tool.

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Next week will also feature earnings reports from notable companies, including enterprise software leader Salesforce and discount retailers Dollar General and Dollar Tree. These results could provide additional context about consumer and business trends as the year draws to a close.

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As December begins, the stock market finds itself at a pivotal moment. The combination of historical seasonal strength, positive macroeconomic indicators, and potential rate cuts presents a strong foundation for continued gains. However, elevated valuations and lingering uncertainties about the Federal Reserve's path and economic policy changes highlight the need for cautious optimism. Investors will closely monitor these developments as they position themselves for what could be a historic finish to 2024.

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