AE Wealth Management: Weekly Market Insights | 12/29/24 – 1/4/25
Weekly Market Commentary
THE WEEK IN REVIEW: Dec. 29, 2024 – Jan. 4, 2025
Markets limp into 2025
After ending its best two-year stretch from 1997 to 1998, the markets began 2025 much the same way they ended 2024.1 As we closed out the year, we expected money managers to engage in some profit-taking and window-dressing. The holidays were in full swing, trading was light and the new year fell on a Wednesday, further interrupting the market rhythm. As markets resumed normal operations on Thursday, we were dealing with a pair of terrorist attacks that dominated the news cycle, and we would argue most traders and money managers did not return to work for the rest of the week.
January tends to be a good bellwether for how the rest of the year performs.2 In fact, the January Barometer has been accurate about 75% of the time, meaning that in years when January was positive, the market ended up higher for the year.3 The last time January was negative was in 2022, and we remember how that turned out. Unfortunately, last week gave us little insight into how 2025 might unfold.
To make it official, the S&P 500 closed out 2024 with a return of +23.31% after notching +24.2% in 2023. Since 2005, $1,000 invested in the S&P 500 would have been worth $7,175 at the end of 20244 — something to keep in mind when markets get volatile and people seem to panic daily and forget about being long-term investors.
Along the way, the S&P 500 posted 57 record closes in 2024,5 which is remarkable given that there are typically around 250 trading days in a year; that’s slightly more than one record close per week for the entire year! The Nasdaq did even better, posting +28.6% in gains led mostly by big tech, which we have covered all year.6 Despite hitting 45,000 in the fall, the Dow was the laggard at around +12.9% for the year7 — still respectable, but we have often cataloged the limitations of the Dow as a broad-based description of what is going on in the markets.
However, as we all know, no one cares about what has been, only what will be. That’s why January is kind of important, and we need to keep an eye on this coming month to determine if the sluggish year-end was nothing more than profit-taking and reallocation rather than an indicator of something potentially more negative.
That pesky 10-year yield is trying to tell us something
As we start 2025, there really is nothing new to react to for the markets. Sure, we had some big headlines to start the year (terrorist attacks8 and the House Speaker9 drama). Still, by and large, it is the same broad drivers for the markets: the battle against inflation, the strength of the economy, consumer spending and jobs, and, above all, interest rates.
Despite these headwinds, so far persistent inflation, overburdened consumers and high interest rates seemingly have not affected economic growth and jobs. True, much of that growth is misleading in that much of the economic and job growth has been due to continued government deficit spending, which may change significantly with the incoming administration.10
Despite the Fed lowering rates by 1% from this time last year, the 10-year U.S. Treasury doesn’t seem to be buying it.11 The problem is inflation and deficit spending. Until those are tamed, the broader bond market will likely say, “No thank you,” no matter what the Fed says.
The Fed already upset the markets by scaling back expectations for rate cuts in December for 2025; more cuts would probably only make money cheaper, encourage more government borrowing and spending, and keep inflation elevated. It will be tricky to negotiate cutting government spending without significant growth from the private sector to make up for it — that might be be a serious balancing act without driving us into a recession.
It could, however, be accomplished with a reduction of government regulations12 (which could not only spur growth but potentially could have the double advantage of cutting the government bureaucrats/agencies who enforced the regulations) and tax cuts to incentivize people to increase their economic activity, hire more people and contribute to economic growth. Then, interest rates can come down, and investors will demand less to tie their money up for the long term.
The 10-year Treasury will be the first to show its appreciation. Right now, the 10-year Treasury is not happy, and if it moves toward 5%, we could have some real trouble.13
Coming this week
- After a couple of truncated trading weeks, this coming week will feature yet another closure and a return to the regular tempo of data.
- We are scheduled to hear from a few Fed officials, including Fed Governor Lisa Cook (Monday), Fed Governor Christopher Waller and Richmond Fed President Patrick Barkin (Tuesday); the minutes from the latest Fed meeting in December will be released on Wednesday; and Thursday we will hear from Philly Fed President Patrick Harker and Fed Governor Michelle Bowman.
- Other data this week will feature factory orders (Monday), U.S. trade deficit and ISM services (Tuesday), MBA mortgage applications and consumer credit (Wednesday), wholesale inventories and unemployment claims (Thursday) and consumer sentiment on Friday.
- MARKETS WILL BE CLOSED on Thursday, Jan. 9, in observance of the national day of mourning honoring late former President Jimmy Carter.
- The other big deal next week will be the state of employment: JOLTS (for November, 7.7 million last reading) on Tuesday, the ADP employment report on Wednesday (last reading was +146,000), and the Bureau of Labor Statistics (BLS) employment situation. Last month, we had 227,000 new jobs and were sitting at a 4.2% unemployment rate.
Index Performance Returns % | |||||
| S&P 500 | 0.67% | 25.18% | 24.87% | 7.61% | 13.00% |
| NASDAQ | 0.76% | 31.38% | 30.62% | 7.51% | 16.97% |
| DJIA | 0.35% | 14.07% | 14.17% | 5.80% | 8.46% |
Interest Rates: | |||||
| UST 10 YR Government Bond Yield | 4.63% | 4.53% | |||
| Germany 10 YR | 2.40% | 2.29% | |||
| Japan 10 YR | 1.11% | 1.06% | |||
| 30 YR Mortgage | 6.99% | 6.89% | |||
| Oil | $74.85/ppb | $70.27/ppb | |||
| Regular Gas | $3.06/ppg | $3.03/ppg | |||
| All data as of Jan. 3, 2025 | |||||
Sources:
1 John Towfighi. CNN. Dec. 31, 2024. “Stocks just did something they haven’t done in nearly three decades.” https://www.cnn.com/2024/12/31/investing/stock-market-end-of-year-wrap/index.html. Accessed Jan. 6, 2025.
2 Ian Salisbury. Barron’s. Jan. 2, 2025. “The Stock Market’s January Effect: Truth or Myth? A Little of Both.” https://www.barrons.com/articles/stock-market-january-effect-43a245c9. Accessed Jan. 6, 2025.
3 Merlin Rothfeld. Trading Academy. Dec. 30, 2024. “As Goes January, So Goes the Rest of the Year: Market Mantra or Myth?” https://www.tradingacademy.com/culture/article/as-goes-january-so-goes-the-rest-of-the-year-market-mantra-or-myth. Accessed Jan. 6, 2025.
4 Felix Salmon. Axios. Jan. 2, 2025. “Stonks just keep going up, despite the pessimists.” https://www.axios.com/2025/01/02/stock-market-returns-2024. Accessed Jan. 6, 2025.
5,6,7 Yeo Boon Ping. CNBC. Jan. 1, 2025. “CNBC Daily Open: S&P 500 soared in 2024 despite a weak fourth quarter.” https://www.cnbc.com/2025/01/02/cnbc-daily-open-sp-soared-in-2024-despite-a-weak-fourth-quarter.html#:~:text=The%20index%20surged%2023.31%25%20in,behind%20much%20of%202024’s%20gains. Accessed Jan. 6, 2025.
8 Glen Thrush. The New York Times. Jan. 2, 2025. “Investigators Search for Links Between New Orleans Attack and Las Vegas Blast.” https://www.nytimes.com/2025/01/01/us/politics/new-orleans-las-vegas-attacks-similarities.html. Accessed Jan. 6, 2025.
9 Scott Wong and Syedah Asghar. NBC News. Jan. 2, 2025. “Mike Johnson fights to retain the speaker’s gavel – with help from Donald Trump.” https://www.nbcnews.com/politics/congress/mike-johnson-faces-election-remain-speaker-donald-trumps-endorsement-rcna185995. Accessed Jan. 6, 2025.
10 Ryan McMaken. Mises Institute. Jan. 15, 2024. “Recession Signal: Private-Sector Job Growth Is Being Replaced by Gov’t-Sector Job Growth.” https://mises.org/power-market/recession-signal-private-sector-job-growth-being-replaced-govt-sector-job-growth#:~:text=Looking%20at%20month%2Dto%2Dmonth,government%20payrolls%20increased%203%20percent. Accessed Jan. 6, 2025.
11 CME Group. “Fed Watch.” https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html. Accessed Jan. 6, 2025.
12 Eric Revell. FoxBusiness. Nov. 18, 2024. “Goldman Sachs: Trump tax cuts, deregulation will boost growth; tariffs could be a drag.” https://www.foxbusiness.com/economy/goldman-sachs-trump-tax-cuts-deregulation-boost-growth-tariffs-could-drag. Accessed Jan. 6, 2025.
13 Vivien Lou Chen. Market Watch. Jan. 2, 2025. “10-year Treasury yield ends not far from 7-month high as new trading year begins.” https://www.marketwatch.com/story/treasury-yields-dip-but-remain-near-seven-month-highs-as-new-trading-year-gets-underway-cf6238c6. Accessed Jan. 6, 2025.
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