According to Zhitong Finance APP, the Global market is about to welcome the last two Trade days of 2024, and unless there are unexpected events, the U.S. stock market is likely to achieve another year of strong gains.

$Nasdaq Composite Index (.IXIC.US)$Leading the way again in 2024, having accumulated an increase of over 30% so far, meanwhile,$S&P 500 Index (.SPX.US)$increasing by over 25%,$Dow Jones Industrial Average (.DJI.US)$increasing by about 14%.

Due to the holiday impact, investors will face a shortened Trade week with limited market news. The market will be closed on Wednesday for New Year's Day, and no major companies are expected to announce quarterly results.

In terms of economic data, the latest housing price and sales data, as well as manufacturing activity data, are expected to highlight the sluggishness of this week's economic data.

Where is the 'Christmas rally'?

The market is about to enter the eagerly anticipated third day of the 'Christmas rally,' which, according to Statistics, is one of the most sustained seven-day rising trends of the S&P 500 Index in a year.

However, this year the stock market does not seem to be showing a festive atmosphere. Last Friday, all three major stock indices experienced sell-offs, with the Nasdaq Index dropping nearly 1.5%.

According to Adam Turnquist, Chief Technical Strategist at LPL Financial, since 1950, the S&P 500 Index has risen by 1.3% over the seven trading days starting on December 24, which is much higher than the usual average of 0.3% for those seven days. History shows that if the 'Christmas rally' does arrive, and the S&P 500 Index rises during this period, January is typically a month when the benchmark index achieves positive returns, with an average ROI of 10.4% for the remainder of the year.

According to Turnquist, when the S&P 500 Index has negative returns during this period, January usually does not end in a decline, but the upcoming average ROI for the entire year is only 5%. This year's Christmas rally will conclude on Friday, January 3rd, and on the third day of the Christmas rally, the S&P 500 Index's decline is still less than 0.1%.

While history may serve as a warning signal, it is worth noting that last year's Christmas rally did not materialize, and January had a poor start. Nevertheless, the S&P 500 Index is still projected to rise over 20% this year.

Higher for longer

As the market digests the recent messages from the Federal Reserve, indicating that interest rates may remain high for longer than investors expected, bond yields have been surging. In December alone,$U.S. 10-Year Treasury Notes Yield (US10Y.BD)$they rose by more than 40 basis points.

Currently, the 10-Year U.S. Treasury yield hovers above 4.6%, approximately the highest level in seven months, and stock strategists believe that sustained high interest rates may begin to weigh down stock market performance.

Piper Sandler's Chief Investment Strategist Michael Kantrowitz stated in a recent video sent to clients: "I think that a U.S. 10-Year Treasury Notes Yield of 4.5% or higher will pose problems for the broader market."

However, Kantrowitz further pointed out in an interview that any economic data leading to a drop in interest rates could be a welcomed signal for the stock market.

Kantrowitz stated on December 18: "The real market declines in the past few years were solely due to rising interest rates or inflation concerns. I think this will be the new normal going forward. Market adjustments will come from interest rates staying at high levels, rather than slower economic growth or higher unemployment rates."

Fundamentals

Citi's U.S. stock strategist Scott Chronert wrote in a report to clients last Friday that despite the market's recent pullback since the Federal Reserve meeting on December 18, the landscape heading into 2025 "has not really changed."

Stock valuations remain high. According to FactSet data, the earnings of S&P 500 Index constituent companies are expected to grow approximately 15% year-on-year, which will impress investors. The market generally expects that the U.S. economy will maintain resilience.

"Overall, investors seem to be optimistic about the U.S. stock market," Chronert wrote.

This has driven a surge in market sentiment measured by the Citigroup Levkovich Index. The Levkovich Index takes into account factors such as investors' short positions and leverage to determine market sentiment, and it currently stands at 0.62, up from the optimistic line of 0.38. Above the optimistic line, the likelihood of positive forward returns is generally lower as the market seems to be in a tense state.

Currently, this has not shaken Chronert's overall confidence in the USA stock market. He pointed out that the "fundamentals" driving the market rebound remain intact.

However, strategists believe that if catalysts challenge the bull market theory of 2025, the tense sentiment and valuations could indeed make the market rebound more fragile.

"Overall, this pattern, along with a lack of real adjustments for a period of time, indeed makes the market more susceptible to increased volatility," Chronert wrote. "If the fundamentals hold, we will be buyers on the S&P 500 Index dip in the first half of the year."

Editor/ping