CNBC Daily Open: U.S. Stocks Kick Off December with a Chill, But a Warm-Up is Imminent

U.S. stocks started December on a chilly note, but investors should expect a warm-up soon. Despite opening with losses, the broad market has shown resilience, with the S&P 500 and Nasdaq Composite reaching new record highs. Sector-specific performances have contributed to this initial chill. Tech stocks, which led the market's rally in 2023, have cooled off as investors rotate towards value stocks. Meanwhile, financials have struggled with concerns about slowing economic growth and potential earnings disappointments.

The postelection rally, following President-elect Trump's win, has been a significant driver of U.S. stock market performance. According to Invesco Ltd.'s report, the S&P 500 and Dow Jones both notched new all-time intraday and closing highs in November. This rally was particularly beneficial for small-cap stocks, with the Russell 2000 surging over 10%. However, the tech sector has faced challenges due to rising interest rates and concerns over slower earnings growth. Despite this, the author believes in the enduring strength of tech giants like Amazon and Apple, advising against selling during market downturns.

Market dynamics, such as inflation, interest rates, and geopolitical factors, have significantly influenced investor sentiment and stock performance in the postelection rally. Postelection, inflation was on a downward trajectory, decreasing from a peak of 9% in June 2022 to 6% in October 2023, as indicated by the Consumer Price Index (CPI). This decline was driven by base effects, a slowdown in energy prices, and a cooling of core services inflation. Slower inflation has led to a decrease in interest rates, with the 10-year Treasury yield falling from a peak of 4.3% in June 2022 to 3.2% in November 2023. Lower rates have made stocks more attractive, contributing to the postelection rally. Geopolitical factors, such as the resolution of the U.S.-China trade war and a more stable global political landscape, have also boosted investor confidence and market performance.
Investor sentiment, driven by postelection optimism, contributed significantly to the rally in U.S. stocks, with the Dow and S&P 500 notching their best month of 2024 in November. Small-cap stocks, benefiting from potential tax cuts, surged over 10%. As we head into early December, investors are keeping an eye on key economic data and speeches from Fed officials. Despite the chilly start, the market is expected to warm up soon, supported by strong fundamentals and investor confidence. However, it's crucial to monitor labor market data and geopolitical tensions for any potential shifts in sentiment.
Key economic indicators and corporate earnings reports that could influence the U.S. stock market's trajectory in the coming months include manufacturing and construction spending data, along with speeches from Federal Reserve officials like Christopher Waller and John Williams. Additionally, investors will closely monitor November nonfarm payrolls report for insights into the labor market. On the corporate side, earnings reports from tech giants like Apple, Microsoft, and Amazon, who have recently faced challenges, could significantly impact the market, as they are still considered long-term growth stocks. Lastly, Facebook's ability to address advertiser concerns and content issues will be crucial for its market performance.
In conclusion, while U.S. stocks began December on a chilly note, investors should expect a warm-up soon. The postelection rally, driven by favorable market dynamics and investor sentiment, has contributed to strong performance across various sectors. As we look ahead, key economic indicators and corporate earnings reports will shape the market's trajectory. By staying informed and maintaining a balanced portfolio, investors can capitalize on the enduring strength of tech giants and the potential for growth in under-owned sectors like energy stocks. Despite external challenges, the future of the U.S. stock market remains promising.