NEW YORK:
After a strong year for US stocks, investors are looking ahead to mid-January, anticipating market shifts driven by economic data and the upcoming transition of power in Washington. The S&P 500 gained about 25% through December 27, and the Nasdaq Composite surged over 31%, reaching over 20,000 for the first time. However, stocks experienced a dip on Friday, as investors took profits and speculated on market performance in January.
“There’s concern that the first part of next year might see some repositioning, and traders are likely positioning themselves ahead of that,” said Robert Pavlik, Senior Portfolio Manager at Dakota Wealth.
The final days of December and the first days of January often bring the “Santa Claus rally,” which has historically boosted the S&P by an average of 1.3% since 1969. Despite the Friday sell-off, the last five trading days saw the S&P rise 1.77%, and the Nasdaq gained 1.8%. The longevity of this upward trend will depend on several factors, including upcoming economic reports.
On January 10, US employment data will provide insights into the economy’s strength, with November’s job growth showing a rebound after earlier setbacks. Market sentiment will be further tested when US companies report their fourth-quarter earnings. Investors are forecasting a 10.33% earnings per share growth in 2025, slightly down from the 12.47% expected rise in 2024. Optimism around President-elect Donald Trump’s policies, particularly in sectors like banking, energy, and crypto, may drive growth.
“Hope for reduced taxes and regulations next year could support corporate profits, which drive the market,” said Michael Rosen, Chief Investment Officer at Angeles Investments.
Trump’s inauguration on January 20 could also create market volatility. He is expected to sign at least 25 executive orders on issues ranging from immigration to energy and crypto policy. Trump has also threatened tariffs on goods from China, Mexico, and Canada, potentially increasing costs for companies and consumers.
Helen Given, Associate Director of Trading at Monex USA, noted that new administrations often bring uncertainty. She also believes the full impact of Trump’s trade policies may not yet be reflected in global currency markets, particularly the euro, Mexican peso, Canadian dollar, and Chinese yuan.
