On Friday, January 3, 2025, U.S. stock markets experienced a notable rebound, breaking a five-day losing streak.
Market Performance
- Dow Jones Industrial Average: Rose by 340 points (0.8%), closing at $42,732.13.
- S&P 500: Increased by 61 points (1.03%), ending at $5,942.47.
- NASDAQ Composite: Gained 1.8%, finishing at $19,621.68.
Volume Analysis
- NASDAQ Composite: Increased slightly but was not impressive in my opinion, indicating increased investor activity but not outright bullishness.
- Overall Market: U.S. exchanges reported lighter volume compared to the 20-day moving average, suggesting slightly lower overall trading activity.
Contributing Factors
- Technology Sector Surge: Tech giants, particularly Nvidia and Tesla, led the rally. Nvidia’s stock climbed by 4%, contributing significantly to the NASDAQ’s performance.
- Anticipation of Policy Changes: Investors speculated on potential policy shifts under the new administration, which could impact corporate profits and inflation.
Contextual Analysis
Despite the day’s gains, all three major indexes recorded weekly declines: the S&P 500 shed 0.48%, the NASDAQ fell 0.51%, and the Dow lost 0.6%. This suggests that while the rebound is encouraging, it may not signify a complete turnaround from the recent sell-off that began on December 18, 2024.
My Take
Overall market volume on Friday was notably subdued, which aligns with a point I made previously: many money managers are likely still on holiday break. By the end of this week, we should gain clarity on whether these money managers return as buyers or sellers.
Looking ahead, there’s no shortage of potential catalysts. Policy shifts from the incoming administration, inflation trends, and the bond market are all factors to watch closely. One key concern I’ve highlighted before is the potential impact of higher bond yields. With the 10-year Treasury note hovering around 4.6%, sustained yields at this level could pose challenges for equities. (I believe, but am not yet sure, the recent surge in yields is most likely recently driven by 3 factors: a large number of bonds being auctioned this week, the uncertainty of the policies of the incoming administration, and perceived inflation.)
I anticipate the first quarter of the year will leave many investors scratching their heads. Inflationary pressures—especially from the service sector—may emerge in Q1 but should not become a long-term issue akin to what we experienced post-pandemic. However, employment is likely to slow significantly by mid-2025, potentially creating complications for the Federal Reserve if it remains hesitant to lower rates.
The lower third of the economy is already grappling with mounting credit card debt, and without some form of relief, this strain could have political consequences, possibly reshaping Congress in two years. As always, politics and markets are deeply intertwined, and the stock market remains a reflection of political sentiment.
Bottom Line
By the end of the week—around January 10th—we should have a clearer sense of the market’s direction for the next two to four months. Stay tuned, as the coming days will be pivotal.
Note: I expect by month end for the 10-year note to be notably lower than the current 4.6%.