On December 24, Wall Street’s main indexes closed higher, marking a strong finish to the pre-Christmas trading session. Megacap and growth stocks powered the rally, with key benchmarks extending their winning streaks in a typically quiet holiday week. The S&P 500, Dow Jones Industrial Average, and Nasdaq Composite all gained, driven by robust performances from the top-performing tech stocks, including Tesla and chip manufacturers like Broadcom and Nvidia.
Santa Claus Rally Kicks Off Early
Tuesday’s market movements marked the first day of the much-anticipated “Santa Claus rally,” a phenomenon where stock prices generally rise during the last five trading days of the year and the first two days of the new year. This seasonal surge has historically been associated with increased investor optimism and lighter trading volumes as many take time off for the holidays.
The S&P 500 extended its winning streak to three days, while the Nasdaq Composite added to its fourth consecutive day of gains. Both indexes benefitted from broad-based strength in major sectors, especially technology and consumer discretionary. With many traders away from their desks, reduced market volume amplified the impact of the megacap stocks, which dominate major indexes.
Tesla Leads the Charge
A significant driver of the rally was Tesla, whose shares surged 7.4%, marking the automaker’s best one-day gain in six weeks. The jump in Tesla’s stock price helped lift the consumer discretionary sector by 2.6%, making it the top-performing sector of the day within the S&P 500. Tesla’s robust performance is reflective of the company’s ongoing leadership in the electric vehicle market, which continues to attract investor attention even in the face of higher interest rates.
Tesla’s surge was part of a broader trend, as the “Magnificent Seven” megacap tech stocks—Tesla, Apple, Microsoft, Amazon, Alphabet, Nvidia, and Meta Platforms—each posted significant gains. These tech titans wield significant influence on the performance of major indexes, meaning their movements often drive overall market sentiment.
Chipmakers See Gains
Chipmakers, too, were in the spotlight on Tuesday. Both Broadcom and Nvidia, two of the most prominent semiconductor companies, saw their stocks rise, with Broadcom climbing 3.2% and Nvidia gaining 0.4%. Arm Holdings, another chip company, also bounced back, rising 3.9% after recouping losses incurred following a court case loss the previous day.
The strong performance of chipmakers is indicative of the sustained demand for semiconductor products, driven largely by advancements in technology sectors like artificial intelligence (AI), data centers, and the Internet of Things (IoT). Despite the higher borrowing costs tied to elevated U.S. Treasury yields, growth stocks, particularly those in technology, continued to attract significant investor interest.
Interest Rates and Growth Stocks: A Complicated Relationship
Traditionally, growth stocks tend to face headwinds when interest rates are high, as the cost of borrowing rises, potentially slowing future earnings growth. The U.S. benchmark 10-year Treasury yield hovered at 4.61% on Tuesday, its highest level since May, signaling that interest rates remain elevated.
However, many investors seem undeterred by the rise in rates, instead focusing on long-term growth themes, particularly in the tech sector. According to Charlie Ripley, Senior Investment Strategist at Allianz Investment Management, advancements in AI and technology development are expected to drive continued strength in the tech sector well into 2025. Ripley emphasized that these fundamental growth drivers outweigh the potential short-term challenges posed by higher interest rates.
This sentiment was reflected in the broader market performance on Tuesday, with all 11 sectors of the S&P 500 ending the session in positive territory, further bolstered by the momentum in megacap tech stocks.
Mixed Sentiment Amid Rate Concerns
While Wall Street’s performance has been strong overall, investors remain cautious as they contemplate the possibility of higher interest rates in 2025. The Federal Reserve’s recent actions have introduced uncertainty into the markets, with many anticipating that the central bank may opt for more interest rate hikes next year. Despite this, the markets have remained resilient, aided by the persistent strength of tech stocks and the seasonal optimism surrounding the end of the year.
The stock market rally that followed the November U.S. election, fueled by hopes of pro-business policies under President-elect Donald Trump, hit a roadblock earlier this month. Investors have been grappling with the possibility of more rate hikes in 2025, and concerns about the impact on growth stocks, particularly those in technology, remain.
Market Outlook and the Santa Claus Rally
As investors look ahead to the final trading days of 2024, many are hopeful that the Santa Claus rally will continue to provide an uplift to stock prices. Historically, the period between Christmas and New Year has been a time of increased investor optimism, and analysts are watching closely to see if the positive momentum can carry over into 2025.
The Santa Claus rally has been particularly strong since 1950, with the S&P 500 averaging a 1.3% gain during the final seven trading days of the year. Historically, a strong Santa Claus rally has been followed by robust market performance in the coming year, with the S&P 500 posting an average annual return of 10.4%.
However, as analysts point out, 2025 will bring its own set of challenges. While the tech sector is poised for growth, especially with developments in AI and other emerging technologies, the prospect of higher interest rates could limit the upside for some sectors. Nonetheless, as the year draws to a close, the market’s focus remains on the positive catalysts provided by the end-of-year rally.
Closing Thoughts
In conclusion, Wall Street’s strong performance on December 24, marked by gains in megacap stocks and a broad rally across sectors, reflects the optimism that accompanies the traditional Santa Claus rally. Tesla’s surge, coupled with strong performances from chipmakers like Broadcom and Nvidia, showcases the ongoing strength of the tech sector. Despite the challenges posed by higher interest rates, investor sentiment remains focused on long-term growth prospects, particularly in technology and AI. As the market enters the final trading days of 2024, investors are hopeful that the positive momentum will extend into the new year.
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