5 keys to markets in 2025; expect some drama, too – Yahoo Finance
In case you haven't counted, there are only five and a half business days left in 2024. And 2024 has been a very good year so far. While not record-breaking, the Standard & Poor's 500 Index's 24.3% gain as of Dec. 20 is nothing short of impressive.
For a record, go back to 1995, when the index soared 34.1%, beginning its fifth straight year of 20% annual growth. (Well, in 1999 it was only a 19.5% increase.)
Additionally, last week was a reminder that investors and markets are all fickle.
There was a sense of unease ahead of Wednesday's Federal Reserve meeting. Inflation is increasingly stuck at about half the Fed's 2% target, and Fed Chairman Jerome Powell warned on Wednesday that interest rates next year may not fall as quickly as most expected.
Both the S&P 500 Index and the Dow Jones Industrial Average fell nearly 3% following Powell's comments. The Nasdaq Composite Index fell 3.6%.
This came as a big surprise as Fed officials reassured everyone on Friday that interest rates would still be cut.
Christmas falls on a Wednesday and, unusually on the calendar, Hanukkah also begins on the same day. The market will be closed on that day.
Trading will continue throughout the day on Monday. Trading will cease at 1pm on Tuesday, with full-day trading set for Thursday and Friday.
New Year's Day is also a holiday, but all other days of the week starting December 30th are open for trading.
If Wall Street research departments and market gurus are to be believed, 2025 should be a decent year. The consensus appears to be for the S&P 500 index to rise 11.3% to 6,600 (before dividends). There are also some strong predictions for the index to end above 7,000, up 14%.
Of course, we're talking about large-cap stocks and such. and indexes, particularly ETFs such as the S&P 500, NASDAQ, NASDAQ 100 Index and SPDR S&P 500 ETF Trust. spy and Invesco QQQ Trust (QQQ) dominated by technology and related stocks.
However, conventional wisdom suggests that this positive sentiment will extend to mid- and small-cap stocks as well.
There are three large catalysts.
Most professional investors believe that spending on artificial intelligence will continue at its current massive levels and yield monetization (profits). Good for Nvidia (NVDA) Taiwan Semiconductor (TSM) Microsoft MSFT, Amazon (AMZN) Broadcom (AVGO) Google's parent company Alphabet (google) and a meta platform parented by Facebook. (Meta) .
Deregulation will encourage more mergers and acquisitions, and if the bond market cooperates with appropriate interest rates, it will create a new wave of initial public offerings.
Finally, as Seattle investor John Markman said Friday, the incoming Trump administration “will provide investors with the fuel to sustain the stock market's robust rally. “I see incredible power in relaxation and tax cuts.”
All of this assumes that the noisy and tense budget battle that just ended does not resume.
Markets were not reassured by the budget battle. Concerns about rising bond yields could also be seen as causing mortgage interest rates to soar.
As of Friday, only three sectors of the S&P 500 index were up in December: consumer staples, technology, and communications services, but they are among the four major sectors in 2024 and in 2025. is also expected to become a major sector. The fourth is financial stocks.
Technology is easy.
Consumer goods stocks include Tesla and Yum! brand (Yum) home center (HD) home builder Lennar (Ren) and Dr. Horton (DHI) and Caesars Entertainment (CZR) . Because this sector is so fast-moving, stock price performance can fluctuate widely. Royal Caribbean is up 84% this year. Tesla rose 69%. nike (NKE) and lululemon athletica (Lulu) They are down 29% and 26%, respectively.
Communication services include Alphabet, Netflix (NFLX) Walt Disney (DIS) And meta. Netflix leads the category with an 87% increase, followed by Fox in Class B. (fox) and Fox Corp. Class A (Foxa) increased by 69% and 67%, respectively.
Some consumer staples like Walmart WMT and Costco Wholesale COST are already winners this year, with gains of 75.5% and 44.5%, respectively. However, the sector as a whole rose only 13.6%. Those companies are performing well, and companies with solid management and increasing dividends will likely attract investors.
Energy is one of the worst performing sectors in the S&P 500. Consumers are happy with that.
The fate of these companies, including Chevron (CVX) ExxonMobil and (XOM) directly tied to oil prices and therefore susceptible to geopolitical forces.
But the Organization of the Petroleum Exporting Countries has struggled to get its members to comply with their quotas. And they face a huge competitor in the United States, which has led global oil production for the past six years.
Crude oil is currently trading at $69.22 per barrel, down 3.4% since the beginning of the year. It was only 30 months ago that oil prices reached $122 per barrel in the United States. Gasoline prices have soared, with the U.S. national average price for AAA reaching $5.016 per gallon in June 2022.
Sunday's price was $3.042 per gallon, down 2.3% from a year ago and a whopping 40% from its 2022 peak. Currently, more than half the country pays less than $3 per gallon.
Further expert interviews:
Starting in late November, large-scale rallies following President Trump's election began to stall. The Russell 2000 Index, S&P MidCap 400 Index, and S&P MidCap 600 Index hit all-time highs on November 25th. The Dow Jones Industrial Average hit its all-time high on December 4th. The S&P 500 index followed two days later. The Nasdaq finally reached its all-time high on December 16th.
One of the reasons is that long-term interest rates have soared due to investor concerns about the fiscal health of the United States. Before the Federal Reserve made its first rate cut on September 18, the 10-year Treasury yield was 3.66%. The yield rose to 4.6% on Thursday, but has since fallen to 4.52%, up from a low of 25% in September.
Mortgage rates tied to the 10-year Treasury note fell to 7% after the Fed announced it may cut rates only twice in 2025, when investors had expected four cuts. rose above. The concern about the Fed meeting was that interest rates were lower. Interest rates above 7% are weighing on home sales and new home construction.
June 2024, a for sale sign posted in front of a house in New York. Newsday LLC/Getty Images
On Friday, two key Fed officials, Austan Goolsby and John Williams, suggested the Fed still has room to cut rates. Mr. Goolsby is president of the Federal Reserve Bank of Chicago. Mr. Williams is President of the Federal Reserve Bank of New York.
Their comments sparked a rally in the stock market on Friday and eased pressure on the bond market. It is unclear whether the relief measures will be carried over into next week. Typically, Santa Claus is expected to rise over the last five business days of the year.
These affect the bond market and the stock market.
The surge in borrowing needs is increasing the cost the U.S. government pays for credit, with repercussions throughout the economy. This is a major reason why interest rates bottomed out in September and have remained higher than expected.
Threat of tariffs. President-elect Trump wants to impose new tariffs on products from Europe, Canada, Mexico and China, but he still insists these tariffs will not drive up U.S. inflation.
Mass deportations. No one knows the scope of President Trump's oath.
the impact of potential mass layoffs by the federal government;
Geopolitics. The Ukraine-Russia war is still ongoing. The same goes for all conflicts in the Middle East. Hotspots to watch: China and Asia. Over the weekend, President Trump demanded that Panama take back the Panama Canal.
Finally, consider a small gift. It's an investable idea that's starting to make a name for itself. It could change computing as we know it, perhaps in the not-too-distant future.
It's called quantum computing, and it's built around the idea of using the arcane branch of physics, quantum mechanics, to create incredibly fast and powerful computers.
The field of quantum computing encompasses many areas, including quantum hardware and quantum algorithms for solving problems that classical computers cannot solve or solve fast enough.
Quantum computers do not use trace amounts of electricity to operate. Rather, they deal with subatomic particles.
Google has unveiled a chip that could quickly solve an experiment that the company said would otherwise take 300 million years to solve.
Several companies went public to raise funds to develop these computers. None of them make much of a profit, but they are working on making the technology viable. This trio is Rigetti Computing (RGTI) ion Q ion Q and D-Wave Quantum System (QBTS) .
Righetti manufactures integrated circuits for quantum computers. IonQ develops quantum computers. D-Wave sells computers that use quantum effects to operate.
All the big tech companies are leveraging this idea. Companies using some of this technology include Master Card MA, NEC, and others. (NIPNF) and Unisys (UIS) .
