Weekly Stock Market Action, Analysis and Stock picks - Dec 13

Stocks Poised to Rally in 2025 besides challenges …

Despite a brief dip this week, where the Dow declined daily and the S&P 500 struggled near its highs, the rally shows no signs of slowing down as we head into 2025. We mentioned in last week’s commentary that the second week of December is traditionally weak and profit taking is observed causing a temporary dip in the markets. Nasdaq, however, managed to eke out a green week amid strong performances by Google, Broadcom and Tesla.

This year felt surprisingly smooth for investors so far. After an August dip, market pullbacks were few and far between, offering prime opportunities to buy. Major market-moving events—the presidential election, geopolitical conflicts, and inflation concerns tied to the Federal Reserve’s rate cuts—barely made an impact.

Even the slowdown of some Mag7 stocks like Nvidia and Apple in the second half failed to derail the rally. Instead, it sparked interest in overlooked sectors such as mid- and small-cap stocks, which gained momentum. The results speak volumes: the S&P 500 climbed nearly 30%, while the Nasdaq surged almost 35%.

At the start of 2024, such optimism seemed far-fetched. Stock valuations were low, recession fears were high, and rate cuts hadn’t begun. Fast forward to today, and the market’s outlook feels more uncertain. The S&P 500 now trades at 22 times next year’s earnings—an expensive level. Speculative bets across stocks, Bitcoin, and even art have increased, and challenges loom.

One notable concern is the 10-year Treasury yield, which spiked 0.25% last week. While the Fed is expected to cut rates by another 0.25% this Wednesday, inflation remains above target. Market sentiment is another red flag: the NYSE Advance/Decline line, which rose steadily throughout 2024, has flattened since September. If it doesn’t turn upward soon, it could signal market weakness.

Looking ahead, Wall Street remains bullish in 2025. Strategists predict the S&P 500 could hit 6,500 by the end of 2024, with some projecting even higher levels. Our outlook is similarly optimistic, with the index potentially reaching 6,700 next year despite existing challenges. This confidence stems from the expected 15% earnings growth in 2025 and continued momentum from the AI revolution. Giants like Nvidia, Google, Amazon, Meta, Apple, Microsoft, and Oracle are leading the charge with massive AI investments and plans in place.

History supports this optimism: as a Deutsche Bank study reveals, the S&P 500 has gained 10% or more in 51 of the past 97 years. If past trends hold, the rally is far from over.

The performance of the different indices last week is summarized as follows:

Index Friday (12/13) Weekly Monthly YTD 1 Year

S&P 500: +0.00% -0.64% +1.10% +26.86% +28.55%

Dow Jones Ind: -0.20% -1.82% -0.30% +16.29% +18.17%

Nasdaq 100: +0.76% +3.31% +3.54% +29.44% +31.50%

Nasdaq Composite: +0.12% +0.34% +3.62% +32.74% +35.24%

Russell 2000: -0.69% -2.45% -0.87% +17.14% +22.06%

S&P 500 Sectors: Weekly Performance and Year-End Outlook

Sector Weekly Performance

Discretionary (XLY) +1.16%

Communications (XLC) +0.01%

Staples (XLP) -0.41%

Technology (XLK) -0.74%

Financials (XLF) -1.71%

Energy (XLE) -1.98%

Real Estate (XLRE) -2.15%

Industrials (XLI) -2.23%

Healthcare (XLV) -2.28%

Utilities (XLU) -2.57%

Materials (XLB) -2.92%

The Discretionary sector led the way last week, buoyed by strong breakouts from Tesla and Amazon, which together account for 40% of the sector. Meanwhile, Communications managed to stay in positive territory, thanks largely to Google’s solid performance. Although Meta hit a new all-time high earlier in the week, it later pulled back.

Interestingly, the usual patterns didn’t hold. Typically, in a down week, aggressive sectors like Discretionary and Communications would lose the most ground, while defensive sectors like Utilities and Real Estate would rise to the top. Instead, we saw the reverse: riskier sectors outperformed while defensive sectors like Utilities and Healthcare landed at the bottom. This suggests that investors are maintaining a “risk-on” attitude, favoring growth-oriented assets over safer plays—a sentiment echoed in the continued strength of the "Magnificent Seven" stocks.

Looking ahead, historical data on the S&P 500 and Russell 2000 show that the last two weeks of December are typically stronger than the first half of the month. Holiday optimism and positive investor sentiment often drive this seasonal strength. As a result, we expect sectors like Discretionary (XLY), Technology (XLK), and Communications (XLC) to perform well, while defensive sectors may take a backseat for now. This trend could also extend to small- and mid-cap stocks, which tend to benefit from the year-end momentum.

One note of caution about the coming week is monthly options expiration on Friday and several of the mag7 stocks are at their record highs causing a surge in call premiums which market makers tend to reduce in the operations expiration week. This is known as the “Maximum pain theory” and it could temporarily hold back advance in mag7 stocks for a few days as we get closer to the upcoming Friday.

In conclusion, we remain optimistic that the current rally will continue, with the potential to push major indices to new highs by the end of the year or early next year. All eyes are on whether a Santa Claus rally can emerge as the year closes.

Important Events next week:

Data due next week includes the GDP, Manufacturing PMI, Initial Jobless claims and Home Sales:

Monday (12/16): S&P Global US Manufacturing PMI (Dec), Global Services PMI (Dec)

Tuesday (12/17): Core Retail Sales (MoM), Retail Sales (MoM)

Wednesday (12/18): Building Starts, Housing Starts, FOMC Statement, FOMC Interest rate decision.

Thursday (12/19): GDP (QoQ), Initial Jobless Claims, Philadelphia Fed Manufacturing Index, Existing Home Sales (Nov)

Friday (12/20): Core PCE Price Index, Personal Spending, Michigan Consumer Sentiment

Important Earnings this week:

Majority of companies have already announced their Q3 earnings results. Some which are due in the upcoming week are:

Wednesday (12/18): Micron Technology (MU), Lennar (LEN)

Thursday (12/19): Darden Restaurants (DRI), CarMax (KMX), Accenture (CAN), FedEx (FDX), Nike (NKE)

Friday (12/20): Carnival (CCL)

Long-Term Stocks:

Our long-term stocks are those in which we have the conviction that they have strong business fundamentals and enjoy moats in their respective industries; hence the chances of long-term profits are high.

MSFT:

Microsoft finally got support from the 50-days EMA and gained 4.75% for the week. This was in line with our expectation that Microsoft will come out of the months long consolidation. As such we think it is well poised to move forward and test its previous high of 466.57. Remains our long-term favorite.

NVDA:

Although Nvidia is a long-term leader but recently it is moving sideways as it is waiting for the semi-conductor group to move ahead after a tremendous run over the last year (+81.86%). Any move above 139.60 (20-days EMA) could see a move back to 152.88 otherwise the consolidation phase could continue. As such the stock is once again actionable at current prices and investors could make an entry or add to the existing position (if any) with a stop loss below the recent low 131.79.

AAPL:

Apple continued its march to new highs (2.32% weekly gains) and remains in our long-term favorite list. Aggressive investors could add to their positions at the current levels with a stop loss below 219 otherwise wait for a pullback to EMA-50 line at 230.

COST:

Costco also continued its march by breaking out to another new high after reporting fiscal Q1 2025 results. Several analysts hiked its price target after a 15% jump in revenue. Although Costco shares have increased by 50% on YTD basis, we think that any pullback to its moving averages around 911-935 will be an opportunity for investors who like this long-term leader and will resurface to capture a good opportunity.

Medium- and Short-Term Picks:

META:

Meta Platforms lost 0.55% last week after registering a new high. The stock is still forming a flat base that also qualifies as base-on-base pattern and remains a favorite in the medium and long term. As mentioned last week, it seems all set to move up after a consolidation to continue the pattern hence it is still actionable. In case of a drop, it is likely to find support at 20-days EMA at 601.

AMZN:

We first mentioned Amazon in late June and since then it has raced to new highs with a 23% gain as expected during the holidays season. Its price action suggests further upside as it is riding the upper Bollinger band but now seems a bit extended. Any pullback to close the gap at 215 would likely find buyers who missed this move. Till then, let us capitalize on the existing move and take some money off the table as soon as 20% gain is achieved.

PLTR:

PLTR was almost flat after a hug gain of approximately 100% in five weeks. We think that after a tremendous run, the stock is extended, and investors should wait for a pullback to key moving averages (20 and 50-days moving averages at 50.18 and 36.39 respectively now).

As suggested earlier, this is another AI winner and for the time being remains market favorite.

Interesting Stocks for Actions and Watchlist:

New Picks:

Tesla:

Tesla seems to have the highest relative strength among the mag7 stocks as it broke out of a 3-year consolidation. We missed the breakout in October just around its earnings announcement time (something that still haunts). Since the US elections, this stock is on fire and has increased by 70% so far. With its relative strength at its highest level among the group, we think it is poised to reach the 500 level as its founder Elon Musk joins the new US administration. Although technically it is extended but we think 500 is not far away and could be achieved in a few days or week time frame. Aggressive investors could try with a 50% position at current levels.

Google:

Alphabet is another candidate for our long-term leaders list which we are adding to it after it unveiled a breakthrough quantum computing chip, Willow along with its latest AI tool Gemini 2.0. The YouTube owner also enjoys video streaming leadership along with the Internet search business although under attach by DOJ. The stock initially broke out but later retreated and is likely to come down to 181-185 range where it is actionable for another entry with a stop loss below 173.

TSM:

Looking for another semiconductor winner. Taiwan Semiconductors is eyeing its previous high of 221.60 amid a 34% increase reported for November. TSM is already investing $65 Billion in a manufacturing plant in Arizona and will not directly be affected by Trump’s proposed China Tariffs. Aggressive investors could take an early entry at existing prices with a stop loss below the 50-days EMA line at 184.

Recently Picked Stocks:

ORCL

Oracle disappointed investors with its results which caused a sell signal as it dipped below 177. However, we think that the current weakness will provide another entry if the stock falls to 160-165 level targeting its prior highs at 196 while maintaining an 8% stop loss level. Let’s put this AI leader on a watchlist for an entry at these levels.

ANET

Mentioned three weeks ago, ANET continued to move higher and advanced by 3.81%. Suggest moving the stop loss to 100 (50-days EMA) as the trend is likely to continue

ANF

ANF lost 5.77% last week. Any further weakness below 131.09 will be a sell signal if an 8% loss is not triggered.

ALAB

Astera Labs gained another 9.75% this week and has so far met our expectations set forth in Nov 22 commentary with over 30% advance. The stock is at all-time highs and is likely to continue its uptrend but seem extended as it is riding its upper Bollinger band. We recommend securing some profits at the 20-25% level and keep riding the uptrend as long as it lasts.

CMG:

After gaining 6.31% last week, Chipotle gave back 1.24% this week. We have mentioned this stock several times during the past weeks and think that it will ultimately move back to test its previous highs of 69.26. Seems a bit extended at current levels but any further pullback to its key moving averages (EMA 50 at 55.80) could provide another suitable entry.

VRT:

After gaining 16% two weeks ago, the stock lost 6/03% last week as it provides another entry with a stop loss at 118.61.

LOAR:

A stop loss was triggered as the stock lost 13.98% last week. Instead of waiting for the rebound we think this is the time to move out of stock and wait for a better time for an entry.

As mentioned in our commentary, it is a volatile stock big moves are pretty common.

GE:

GE consolidated at the lower edge of the trading range with a small gain of 0.72% last week. We think that the stock is still actionable, targeting a move above 194.80 while a stop loss below 155.

HD

Home Depot lost 3.34% last week. We are still waiting for the moving averages to catch-up with the price for an alternate entry. Till that time let’s put it in a watchlist.

AVGO:

We mentioned last week that aggressive investors could add to their positions and AVGO broke out on its earnings results causing a surge of 25.22% in one week. The stock is extended now, and we should wait for a better position for another entry, possibly a pullback to 200 or even lower.

CAVA:

Cava triggered a sell signal and accordingly put on a hold for another move in future. Till that time park this stock for a watchlist.

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