Macroeconomic and Market

Outlook - End of Year

December 2024

DMW FINANCE GROUP

Switzerland
Contents
I. Editor’s Note: “Sweater Weather”

II. The Main Event: "The Final Countdown:

2024’s Economic Finish Line”
III. “5 Under-the-Radar Economic Predictions for the
Next 6 Months”

IV. S&P 500 Sector Preferences

September 2024
 I. Editor’s Note
Sweater As we stroll into the final quarter of 2024, there's a lot brewing in the
world of economics—and no, it’s not just the pumpkin spice lattes
fueling consumer spending (though that helps!).
Weather, Rate In this report, we take a deep dive into the Federal Reserve’s latest

Cuts, and S&P musings, balancing interest rates with the grace of a tightrope walker.

Spoiler alert: they’ve cut rates, but don’t pop the champagne just yet;
Gains: What’s inflation’s still lingering like that guest who won’t leave the party.

The S&P 500 is currently sitting at a cozy 5718, and it’s looking to end
Next? the year with some extra muscle.

We’re predicting a rise to around 6000, assuming the Fed doesn’t spook
the markets with any surprise moves. On the labor front,
unemployment’s at 4.2%, and while it might tick up slightly, the job
market’s holding strong. Wages are still climbing, but not at the dizzying
heights we saw earlier.

In short, the economy’s moderating, but it’s not going into hibernation
anytime soon. So, grab a cup of coffee (or something stronger), sit back,
enjoy the ride through this year-end forecast, and stay to the end for 5
things you surely didn’t know about the current economy.

- Steven Morales de Medrano

September 2024
 II. Macroeconomic and Market
Outlook for December 2024

5718
S&P 500 Index Current Price
1. Introduction
The U.S. economy at the close of 2024 is expected to experience
a period of economic moderation, driven by the Federal

4.2%
Reserve’s carefully calibrated monetary policy.
The Federal Open Market Committee (FOMC) minutes from
Unemployment September 2024 reflect the dual mandate of promoting maximum
employment while ensuring price stability through a cautious but
deliberate reduction in interest rates.

6000
This report examines the potential outcomes of these policy
actions, focusing on interest rates, GDP growth, equity market
End of Year Forecast, S&P 500
performance (S&P 500), and labor market dynamics.
2. Macroeconomic Context: Key Takeaways from
September 2024 FOMC Minutes 2.2%
PCE Inflation

The FOMC’s decision to lower the federal funds rate target range to

4.75%
4.75%–5% reflects growing confidence that inflationary pressures
are moderating.
Core inflation, though still elevated, is trending downward, with Target Range Low

PCE inflation running at 2.2% on an annualized basis in August.

Labor market conditions, while easing slightly, remain robust, with

5.00%
unemployment at 4.2%.
Consumer spending remains a key driver of economic growth,
supported by stable wage growth and continued household Target Range High
consumption.
3. Interest Rate Forecast
The FOMC’s decision to lower the federal funds rate
target range to 4.75%–5% reflects growing confidence that Moderating Inflationary
inflationary pressures are moderating.
Pressures
Core inflation, though still elevated, is trending
downward, with PCE inflation running at 2.2% on an
annualized basis in August. Labor market conditions, while Stable Wage Growth
easing slightly, remain robust, with unemployment at 4.2%. and
Consumer spending remains a key driver of economic Household Consumption
growth, supported by stable wage growth and continued
household consumption.
3.2. Monetary Policy Framework 4. Economic Growth Forecast (Real GDP)
The Fed's gradual approach is informed by a 4.1. Growth Drivers
balance between inflation control and supporting
The U.S. economy exhibited solid momentum in the
ongoing economic expansion.
first half of 2024, with real GDP growth around 2.2%.
While the September minutes revealed some As indicated by the FOMC, the underlying drivers of
dissent regarding the pace of easing, the overall growth, particularly consumer spending, remain intact.
consensus supports rate reductions as inflation However, signs of moderation are emerging,
nears the 2% target, allowing for less restrictive particularly in the labor market and business
monetary policy. investment.
Private Consumption: Pent-up demand for durable
goods, home improvements, and large-ticket items
continues to support spending, even amid high
borrowing costs. This dynamic, coupled with strong
household balance sheets and easing inflationary
pressures, suggests stable consumer demand through
year-end.
Business Investment: The FOMC minutes highlight a
mixed landscape for business spending, with
manufacturing weakness offset by continued expansion Solid GDP Growth
in non-manufacturing sectors. The equipment and
technology sectors are poised for modest growth, driven
by innovation and capital replacement cycles. Stable Consumer Demand

4.2. GDP Projection

Non-Manufacturing
Compensating for
Q4 2024 GDP Growth Forecast: We project real GDP
growth of 2.5%–3.0% in Q4 2024, underpinned by Manufacturing
resilient consumer spending, moderate investment in
non-manufacturing sectors, and easing inflation.
5. S&P 500 Forecast
5.1. Market Sentiment and Risk Factors
At 5718, the S&P 500 reflects the market's cautious Lower Borrowing Costs
optimism regarding the trajectory of interest rates and & Consumer Spending
corporate earnings. Lower borrowing costs, combined
with sustained consumer spending, are likely to support
corporate profit margins, particularly in sectors like Support
technology, consumer goods, and services. Corporate Profit Margins
However, risks remain. Geopolitical tensions and
energy price fluctuations could exacerbate inflationary Geopolitical Tensions
pressures, potentially stalling the Fed's rate cuts.
Moreover, any significant labor market cooling could Energy Price Fluctuations
undermine consumer confidence and spending. Loom Real
We project the S&P 500 to rise to a range of 5900–
6000 by December 2024.
6. Labor Market Forecast 7. Conclusion and Implications
6.1. Current Conditions The economic outlook for December 2024 is one of
moderation and cautious optimism. The Federal
The FOMC’s assessment of labor market conditions
Reserve’s measured approach to rate cuts, combined
indicates a slight cooling, with the unemployment rate
with solid consumer spending and modest business
at 4.2% in September 2024. Job growth has slowed, and
investment, suggests that the U.S. economy will
the vacancy-to-unemployment ratio has declined to pre-
maintain a steady course into the new year. The S&P
pandemic levels. Wage growth, while still elevated, is
500 is likely to benefit from improved earnings
moderating.
prospects, while the labor market remains resilient.
6.2. Outlook for Unemployment
However, risks—particularly around inflationary shocks
December 2024 Forecast: The unemployment rate is and geopolitical tensions—must be closely monitored.
expected to stabilize around 4.3%–4.4% by the end
Any sudden changes in inflationary pressures or sharp
of the year, as the labor market maintains a healthy
deterioration in the labor market could prompt a more
balance between job creation and labor supply. This
hawkish response from the Fed, potentially impacting
level would still be considered low by historical
both growth and equity market performance.
standards, reflecting resilience in key economic sectors.
8. Recommendations for Stakeholders
Investors should prepare for continued volatility but
remain optimistic about equities, particularly in sectors
like technology, healthcare, and consumer goods.
Policymakers must continue to balance inflation risks
with supporting labor market strength, ensuring that
monetary policy adjustments are gradual and data-
driven.
Businesses should be cautious about over-leveraging in
the current environment but can benefit from lower
borrowing costs to finance strategic investments.

References:

Federal Reserve, “FOMC Minutes, September 17-18, 2024.”

Bureau of Economic Analysis (BEA) data on GDP growth, 2024.
U.S. Department of Labor, Unemployment and Labor Market
Statistics, August-September 2024.
III. 5 Under-the-Radar Economic Predictions
for the Next 6 Months
1. The Rise of 2. Corporate 3. Surprise 4. A Quiet 5. Emergence of
“Small-Ticket” Debt Upswing in Rebound in Regional
Consumer Restructuring Labor Force Manufacturing Inflation Pockets
Spending Surge Participation Exports
While big-ticket items like With interest rates still As inflation moderates Although manufacturing As overall inflation eases,
cars and homes are cooling relatively high despite and wages plateau, has been weak recently, regional inflation disparities
off due to high borrowing gradual cuts, corporate expect an increase in exports of U.S. will become more
costs, small-ticket debt restructuring will labor force participation, manufactured goods are pronounced. For example,
discretionary spending (e.g., become more common. especially among retirees set for a quiet rebound. coastal cities with higher
tech gadgets, entertainment, Companies, particularly in or previously sidelined With global inflation housing demand (e.g., San
travel) is expected to hold sectors with high capital workers. With job cooling and central banks Francisco, New York) may
strong. With wage growth needs like energy, real openings still healthy and around the world lowering see elevated housing prices
stabilizing and inflation estate, and tech, will look to fewer inflationary interest rates, demand for due to supply shortages,
easing, consumers are likely refinance or restructure pressures on household U.S. products—particularly while regions in the Midwest
to shift their focus to debt as borrowing costs budgets, more people will in sectors like aerospace, or South could experience
experiences and smaller, remain elevated. Watch for return to the workforce. pharmaceuticals, and high- disinflation. These local
more affordable luxury a rise in mergers and This could ease some of tech equipment—will rise. inflation pockets will create
purchases. This trend will acquisitions as companies the labor shortages seen This could give an unique economic pressures
benefit sectors like seek to consolidate and over the past couple of unexpected lift to GDP in that affect regional housing
hospitality, tech accessories, strengthen balance sheets years, particularly in early 2025, especially as markets and wage growth
and streaming services. in this environment. industries like healthcare, China and Europe stabilize. differently.
education, and retail.
IV. Portfolio Strategy

Technology
Easing interest rates, strong consumer demand for tech, productivity gain ▲ Overweight
Tech stocks are benefiting from demand for AI, cloud computing, and software, but high
valuations could limit growth.

Health Care
Ageing population, innovation in biotech, stable consumer demand ▲ Overweight
Health care is experiencing steady demand, with strong growth potential in biotech and
innovation-driven areas, making it an attractive defensive sector as inflation moderates.

Financials
Rate cuts easing pressure on margins, rising consumer credit risk ▼ Underweight
Banks and insurance companies face mixed prospects; rate cuts help margins, but rising
delinquencies are a concern..

Consumer Discretionary
Strong consumer spending, easing inflation, and demand for travel, entertainment, and luxury ▲ Overweight
goods. / Retailers, travel, and entertainment sectors are seeing robust consumer spending, driven
by easing inflation and higher disposable income, though high borrowing costs may constrain big-
ticket purchases.
IV. Portfolio Strategy (Cont.)

Communication Services
Digital advertising recovery, content streaming demand ● Neutral
Media and telecom firms see growth in streaming and 5G rollout, though content costs and
competition remain issues.

Industrials
Infrastructure spending, rebound in exports, easing supply chain issues ▲ Overweight
Manufacturing firms face mixed demand, but defense, infrastructure, and export sectors are
performing well.

Consumer Staples
Stable consumer demand, lower inflation in essentials ▲ Overweight
Consumer staples are benefiting from stable demand and improved margins as inflation
pressures ease, making this sector a defensive yet attractive play for the rest of the year.

Energy
Volatile oil prices, global demand shifts, geopolitical risks Oil and gas companies are seeing ▼ Underweight
price volatility; renewable energy transitions remain a long-term opportunity.
IV. Portfolio Strategy (Cont.)

Utilities
Defensive sector appeal, rate sensitivity due to high debt levels ● Neutral
Utilities remain a defensive play amid rate cuts, though heavy debt loads may limit gains from
lower interest rates.

Real Estate
Rising borrowing costs, office space vacancies, shift to digital economy ▼ Underweight
REITs and commercial real estate face challenges with high rate levels and lower office demand,
but residential is resilient and Data Centers show growth.

Materials
Global demand for raw materials, cost of energy, inflation in inputs ● Neutral
Metals and chemical companies benefit from infrastructure growth but face cost pressures from
energy and raw materials.
 Artwork: Goyo Valdemar
Private Markets VC & IB
Commercial Real Estate, Hospitality, Luxury Consumer
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