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January 6, 2025

“Buy right and hold tight.”

Jack Bogle

 

From Market Beat and the AP… Equity markets rebounded on Friday to end the week down slightly from the end of 2024. The move may indicate market weakness, but that has yet to be seen. As it is, the market remains above critical support levels and aligned with uptrends that are expected to continue. Price action on the daily chart suggests the rally could resume next week, and there are reasons to think it will. Next week will bring another round of economic data likely to show solid labor markets and consumer health, and the following week will be the beginning of peak earnings season. With economic health and earnings growth in the picture, it is unlikely that the S&P 500 will fall far if it does at all.

Oil is reemerging as a risk. The price of WTI advanced more than 5% last week and is on track to hit the top of its trading range in early Q1. The move is driven by the expectation for Trump’s policies and surprise stimulus in China. China increased wages for a large portion of its economy to invigorate consumption. The risk is that higher oil prices will reinvigorate inflation and keep the Fed from further lowering rates

Previously, the U.S. stock indexes slipped on Thursday as Wall Street’s weak end to last year carried into 2025. The S&P 500 fell 0.2% to extend the four-day losing streak that dimmed the close of its stellar 2024. The index pinballed through the day between an early gain of 0.9% and a later loss of 0.9% before locking in its longest losing streak since April. The Dow Jones Industrial Average fell 151 points, or 0.4%, after an early gain of 360 points disappeared, and the Nasdaq composite lost 0.2%. Tesla helped drag the market lower after disclosing it delivered fewer vehicles in the last three months of 2024 than analysts expected. The electric-vehicle company’s stock slumped 6.1%.

Some Big Tech stocks also helped limit the market’s losses. Nvidia, whose chips are powering the world’s move into artificial-intelligence technology, rose 3% after following up its nearly 240% surge in 2023 with a better than 170% jump last year. Some investors and analysts are counting on the AI rush to continue, even though critics say it’s made stock prices too expensive.

In an AP Story the consensus opinion is Inflation has remained stubbornly above the Fed’s 2% target, and Trump’s pushing for tariffs and other policies has raised worries about potentially more upward pressure on prices that U.S. consumers have to pay. That drove the Fed to say recently it will likely deliver fewer of the economy-juicing cuts to interest rates in 2025 than it had earlier thought. We basically agree but are more optimistic on inflation due to expected dramatic cuts in spending going forward.

Expectations for a string of such cuts were a major reason the S&P 500 set dozens of all-time highs last year. Until now, the economy has held up remarkably well despite the high rates brought by the Fed in recent years to stifle inflation. Many investors expect the Fed to keep its main interest rate steady later this month, which would be the first meeting in four where it hasn’t eased rates.

In the bond market, Treasury yields held relatively steady. The yield on the 10-year Treasury edged down to 4.56% from 4.57% late Tuesday after a report said fewer U.S. workers applied for unemployment benefits last week than economists expected. It’s the latest signal that the job market remains solid.

So going into 2025, expect continued volatility and as the Trump presidency reemergence and the dramatic change in policy takes effect, we overall our bullish on the US economy and the markets for 2025. More in our quarterly report to our clients coming later this week.

 

Mike