Business activity in the US services sector showed noticeable growth in December, as indicated by the ISM Services Index survey. The index climbed to 54.1, well above the neutral level of 50, suggesting robust expansion. A potential warning for inflation can be seen in the notable increase in the prices index for services. “General optimism was observed across numerous industries, although concerns about tariffs elicited significant feedback from panelists,” comments Steve Miller, chair of ISM’s Business Survey Committee.
US economic activity is anticipated to show a slowdown in growth in the forthcoming fourth-quarter GDP report. According to the median projections from several sources, output is expected to decelerate to its slowest rate since the first quarter of 2024.
US factory orders declined more than forecasts indicated in November. New orders for manufactured goods fell by 0.4% compared to October, marking the fourth consecutive monthly decline. Year-over-year, factory orders dropped by 1.9% in November, maintaining a tight range around zero change that has characterized the past 18 months.
While there are numerous factors that might cast doubt on a positive outlook at the beginning of the year, the upward trend remains largely intact, particularly when examining a set of ETF pairs tracking global asset allocation strategies as of January 3. Nevertheless, a more detailed analysis of the markets presents a mixed picture.
US manufacturing’s contraction eased in December, as reported by the ISM Manufacturing Index. The survey-based measure rose to 49.3 last month, the highest level since March. Despite this progress, the index remains below the neutral mark of 50 and has indicated contraction for 25 out of the past 26 months. Meanwhile, analysts at ING note that “US manufacturing shows encouraging signs of life after a prolonged period of stagnation.”
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The expected long-term return for the Global Market Index (GMI) remained stable in December compared to the previous month. This steady forecast, derived from three different models outlined below, reflects the second consecutive month boasting the highest return outlook for this multi-asset-class global benchmark.
US jobless claims recently dropped to their lowest level in eight months. “Although last week’s data came during the holiday period, the decline in new claims—the first key piece of economic data this year—indicates that the labor market remains robust,” observes an analyst from RSM US LLP.
In 2024, US equities significantly outperformed global markets, establishing a wide margin despite a mixed performance across major asset classes, based on a review of various ETFs.
The US stock market (SPY) concluded 2024 with a remarkable total return of 24.5% for the year. In contrast, US bonds (BND) experienced a lackluster gain of just 1.1% during the same period.
### Summary
In December, business activity in the US services sector demonstrated significant growth, as reflected by the ISM Services Index. Additionally, US factory orders decreased more than anticipated, hinting at potential challenges. Economic growth projections for the fourth quarter indicate a slowdown, while jobless claims have reached an eight-month low. Despite mixed evidences, US equities showed strong performance throughout 2024, leading global markets.
### Conclusion
Overall, while there are favorable signals in certain economic sectors, potential challenges may lie ahead. Observations from December paint a complex picture of the market, calling for ongoing analysis as we navigate through early 2025.
