Markets Dip as Investors Lock in Profits, but 2024 Still Ends on a High | Daily Market Analysis

Key events:

• New Year's Day - Early close

The S&P 500 closed lower on Monday as investors appeared to secure profits after a stellar year, signaling caution as 2024 approaches its conclusion.

The Dow Jones Industrial Average fell 418 points, or 1%, while the S&P 500 dropped 1.1%, and the NASDAQ Composite declined by 1.2%. The declines reflect profit-taking activity, a common trend during year-end trading, as market participants reassess risk and recalibrate portfolios.

Despite the pullback, 2024 remains on track to deliver an outstanding performance. The S&P 500 has surged over 23%, and the Dow Jones Industrial Average has climbed 14%, marking their best annual returns since 2021. The Nasdaq, meanwhile, has soared approximately 30%, cementing its position as this year’s strongest performer. Moreover, the Nasdaq is on pace for its longest streak of quarterly gains since the second quarter of 2021, reflecting strong investor confidence in technology stocks and growth-oriented sectors.

Shares of Boeing (NYSE: BA) declined more than 2% following a tragic aviation accident in South Korea. On Sunday, a Boeing 737-800 crash-landed at Muan International Airport, resulting in 179 fatalities in the country’s deadliest aviation disaster to date.

The aircraft skidded off the runway, collided with a wall, and erupted into flames. This incident raises questions about safety standards and could pose challenges for Boeing as it navigates ongoing scrutiny over its commercial aviation segment.

The Australian Dollar exhibited tepid performance against the US Dollar on Tuesday after the release of mixed economic data from China, Australia’s largest trading partner.

China’s official Manufacturing Purchasing Managers' Index (PMI) fell to 50.1 in December, down from 50.3 in the previous reading and below market expectations. Conversely, the Non-Manufacturing PMI jumped to 52.2, signaling resilience in the service and construction sectors.

The Reserve Bank of Australia’s latest meeting minutes reflected cautious optimism, noting improved inflation expectations while emphasizing the need for restrictive monetary policy to manage ongoing risks.

The EUR/USD pair gained ground on Tuesday, trading near 1.0410 during the Asian session after Monday’s losses. A softer US Dollar drove the recovery, as Treasury yields fell approximately 2%. The US Dollar Index, which measures the greenback’s performance against a basket of major currencies, edged lower to 108.00.

Despite this rebound, the Euro remains under pressure from multiple headwinds. The Federal Reserve is expected to adopt a cautious approach toward rate cuts in 2025, signaling a shift in monetary policy. Geopolitical risks, including the ongoing Russia-Ukraine conflict and heightened tensions in the Middle East, further weigh on the Euro.

Adding to the challenges, the European Central Bank has maintained a dovish stance. Policymakers are expected to lower the Deposit Facility rate to 2% by mid-2025, gradually reducing rates by 25 basis points (bps) at each meeting during the first half of next year.

The GBP/USD pair retraced earlier losses, trading near 1.2550 during Tuesday’s Asian trading hours. However, the British Pound remains vulnerable due to geopolitical risks and shifting expectations for the Bank of England’s monetary policy in 2025.

Market projections now anticipate a 53-basis-point rate reduction next year, an increase from the 46 bps estimated after the BoE’s December meeting, where rates were held at 4.75%. This dovish outlook adds pressure on the Pound as traders factor in slower economic growth and lower interest rates.

The New Zealand Dollar continues to face headwinds, trading near 0.5635 during thin early Asian market activity on Tuesday. Among the G10 currencies, the NZD was one of the weakest performers in 2024, down over 10% against the US Dollar.

The Reserve Bank of New Zealand’s dovish policy stance and tariff threats from the Trump administration have weighed heavily on the Kiwi. However, a recent stimulus package from the Chinese government could provide some relief. China’s central government announced measures to support citizens grappling with the cost of living and promised additional benefits for the unemployed ahead of a key national holiday.

As 2024 concludes, market participants are carefully navigating global uncertainties, including economic policy changes, geopolitical risks, and fluctuating market data, highlighting the importance of a strategic and informed approach to trading and investing.