After a remarkable year for US stocks, investors are now looking ahead to a potentially pivotal January.
Market momentum from 2024 is expected to carry into mid-January, but several key events, including a new presidential administration and significant economic data releases, could dramatically influence the market’s trajectory in the new year.
Riding the Santa rally wave
The S&P 500 rose nearly 27% in 2024 through December 26, while the tech-heavy Nasdaq Composite surpassed 20,000 for the first time in December, up 33.4% on the year.
This end-of-year surge is not unusual; November through January is a traditionally strong period for the market, and stocks tend to perform well in the last five trading days of December and into the first two days of January, a phenomenon known as the Santa Claus rally.
This rally has driven S&P gains of an average of 1.3% since 1969.
The S&P rose 2.91% over the last four trading sessions, with the Nasdaq up 3.3%, boosting hopes for a repeat of this trend.
“The underlying data suggests that that’s likely to continue,” said Michael Rosen, chief investment officer at Angeles Investments.
Economic data and corporate earnings take center stage
However, the longevity of this upward trajectory will depend on several factors.
The release of monthly US employment data on January 10 will offer investors a crucial snapshot of the US economy’s health.
Job growth rebounded in November following setbacks related to hurricanes and strikes earlier in the year.
Shortly after, US companies will start releasing their fourth-quarter earnings reports, which will provide an important look into company performance.
Investors currently anticipate a 10.6% earnings per share growth in 2025, compared to a 12.16% expected rise in 2024, according to LSEG data.
Trump’s inauguration and market uncertainty
President-elect Donald Trump’s inauguration on January 20 is another major event that could introduce market uncertainty.
Trump is expected to issue at least 25 executive orders on his first day, covering issues ranging from immigration to energy and crypto policy, all of which have the potential to impact financial markets.
Trump has also proposed tariffs on goods from China and levies on products from both Mexico and Canada, as well as a crackdown on immigration, all of which could translate into higher costs for companies, potentially passed on to consumers.
“We’re looking ahead to see which of those proposed policies actually are enacted, which might be further down the pipeline,” Helen Given, associate director of trading at Monex USA told Reuters, adding that these policies could have a big impact on global currency markets.
The Federal Reserve’s influence
The Federal Reserve’s first monetary policy meeting of the year, expected in late January, could also play a pivotal role in shaping market sentiment.
Stocks tumbled on December 18 when the Fed implemented its third interest-rate cut of the year but signaled fewer cuts in 2025 due to uncertainty about the inflation outlook.
This disappointed investors who had hoped for more aggressive rate cuts to boost corporate profits.
Crypto sector eyes Trump administration
Despite uncertainty in other areas of the market, a positive outlook for crypto has taken hold thanks to the incoming crypto-friendly administration.
The potential for favorable policies from the Trump administration is providing a boost for cryptocurrencies, with Bitcoin surging above $107,000 this month on these hopes.
“Crypto is viewed broadly as a kind of risk on assets. So, any Fed cutting rates is a positive… Any positive economic data in early January will help maintain the momentum that we’re seeing,” Damon Polistina, head of research at investment platform Eaglebrook Advisors, told Reuters.
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