From January 6 to January 10, 2025, the S&P 500 and the NASDAQ Composite experienced notable movements influenced by various economic factors.
S&P 500 Performance and Support Levels
The S&P 500 began the week with gains, rising 0.6% on January 6, driven by a rally in semiconductor stocks.
However, by January 10, the index declined by 1.54%, closing at 5,827.04.
The 50-day and 200-day moving averages are critical support levels for the S&P 500.
As of January 10, the index remained above both averages, indicating we are still intact.
A 10% correction from the recent highs is normal for bull markets, which would approximately position the S&P 500 around 5,600. If the index breaks below its previous breakout, around 5,644, on heavy volume, I would begin to worry seriously.
MY TAKE ON THE S&P 500
There is some repositioning by institutions in the big names. It seems many are taking money off the table and adopting a “wait and see” approach regarding the policies of the new administration. Utility banks and some healthcare appear to be good “places to hide” as many institutions look for positive returns in 2025.
I do believe that the short-term support levels will hold with the earnings season beginning next week, which will provide a clearer picture of whether institutions will be net sellers over the next 4–6 weeks. Earnings should be good based on last quarter’s growth projections. I am not getting sucked up in the possible vacuum good earnings could provide. The question is whether institutions are buyers or sellers on the news. I believe a lot of the weakness this week was related to a split week (Thursday the market was closed) and the weakness in the bond market.
I’ve mentioned this before: now is a good time to take money off the table when the opportunity arises. If earnings season has a slight upward bias, it is a good idea to take money off the table and look to reinvest when market conditions are more conducive. I am buying only one stock right now that I believe is undervalued and will have a significant run between now and the end of 2026.
NASDAQ Composite Performance and Support Levels
The NASDAQ Composite also saw gains early in the week, rising 1.2% on January 6, supported by the tech sector.
By January 10, it had decreased by 1.63%, closing at $19,161.63.
MY TAKE
As of January 10, the index was trading below its 50-day and above its 200-day moving average. The previous breakout point is 18,500 is a significant support level. A decline to this level could attract buyers, reinforcing the index’s upward trend, and if it does not, this market is in trouble in my opinion! Again, if earnings season has a slight upward bias, it is a good idea to take money off the table and look to reinvest when market conditions are more conducive. I mentioned before I am buying one stock now only because it recently took a big hit, and I feel it is undervalued.
In summary, both the S&P 500 and NASDAQ Composite showed early-week gains followed by declines, with key support levels remaining intact.
THE FLY IN THE OINTMENT, 10-Year Treasury Yield
The 10-year Treasury yield experienced an increase during this week, reaching approximately 4.76% on January 10.
This rise was influenced by a stronger-than-expected jobs report, with the U.S. economy adding 256,000 jobs in December, surpassing the forecast of 160,000.
While robust employment data can signal potential inflation, the yield increase this week is more likely attributed to the substantial supply of bonds being auctioned.
The U.S. Treasury’s issuance of $119 billion in debt has exerted upward pressure on yields, as investors demand higher returns to absorb the increased supply.
The rise in the 10-year Treasury yield appears to be driven more by increased bond supply than immediate inflation concerns.
MY TAKE (remember this!)
I see the 10-year Treasury yield potentially being a problem for equities if it hangs out above the 4.6%-5% range for too long. But do I think that’s likely? Nope. Sure, we might get a spicy inflation report from the service sector in Q1, but let’s call it what it is—a one-hit-wonder. True goods-price inflation, if it dares to show its face, won’t make a cameo until the second half of 2025, and even then, I’d give it less than a 50% shot.
Now, the real wildcard for interest rates? It’s not the Federal Reserve—it’s the new administration and whatever policies they can finagle through Congress. My take? This administration talks a big game because they have to, strutting around with a metaphorical big stick. After all, that’s what a president should do, but when it comes to actual action, they’re more bark than bite, because they know it’s in their best interest and the economy’s best interest, which is good for everyone.
Don’t get me wrong—they’re smart. Business savvy and PR-savvy. Tariffs? Yeah, we’ll see some, but not a blanket, “everything must pay” kind of deal. That’d be inflationary. Deportations?
Sure, the media will highlight them, but mass deportations? Not happening. Again, inflationary. With unemployment at 4.1%, the last thing they want is to ignite wage inflation with mass strikes and a lack of labor. Just ask UPS how fun that game is—compare their shipping rates now to pre-strike days (If you use UPS daily, you know.)
And let’s not forget: the 47th president is a real estate guy. Loves low rates like a kid loves candy. Why? Well, for one, home affordability is a political powder keg. Lower rates are a no-brainer win there and gather voters from a generation his party needs. Next, commercial real estate is gasping for air, dragging down regional banks with it. These banks have been extending loans like handing out life vests on a sinking ship, but guess what? That doesn’t solve the underlying issue. CRE loan maturities are piling up—$400 billion worth in the near term. That’s 27% of bank capital now tied up, compared to just 16% in 2020. Oh, and it’s also choking their ability to issue new loans. Lovely.
And let’s not forget the federal deficit. Last week alone, the government borrowed $119 billion. Here’s some math for you: at 4.7% instead of 3.5%, Uncle Sam is paying nearly $3 billion extra in interest over just two years. So, you tell me: does the new administration want lower interest rates? Yeah, I think they’re pretty motivated.
Any time there are more questions than answers, this means uncertainty. The institutions that are the fuel of the stock market hate uncertainty and seem very hesitant. I am leaning towards a range-bound market in the next few weeks. I don’t see a sell-off, but it could happen as the underlying market is extremely nervous, and it would not take a lot to set it off. New market highs in the short term seem unlikely. But earnings season should produce opportunities to raise cash and sit back and see the questions answered by institutions that are waiting. That could provide additional opportunities moving forward.