01/06/2024 Market Strategy
- January 6, 2025
What’s the Market Telling Us?
Sometimes the Bear’s Growl Seems Worse than its Bite
Key Takeaways
- Investors rotated and rebalanced portfolios over the last two weeks of the year. Results for the first two trading sessions of 2025 showed across-the-board gains in the major US indexes as investors positioned portfolios for 2025.
- The ISM index of purchasing managers in manufacturing showed conditions improving in the sector as the index rose to 49.3 in December, less than a point shy of the breakeven point for expanding activity. The 1.9% rise in the index is all the more remarkable given the US dollar’s strength since late October.
- This week brings the much larger survey of services firms as well as the nonfarm payroll change and unemployment data for December.
- Equity markets will be closed on Thursday, Jan. 9 for the State Funeral of former President Jimmy Carter.
Stocks rallied last Friday after uncertainty surrounding the outcome of the vote held in Congress to determine the new session’s House Speaker was resolved on a first vote with an outcome that eased the market’s “worried mind.” That combined with earlier data on manufacturing from S&P Global on US PMI and a better than expected ISM Manufacturing Index saw stocks reverse direction with the S&P 500 ending the week just 2.4% off from its most record high of 6090 reached on December 6.
Curiously for all the clamor earlier in last week’s market related commentary and debates in the media about the move lower from early December and the failure of the Santa Claus Rally to boost stocks as the old year ended and the New Year began—the S&P 500 had moved just 3.64% lower from its record high on December 6 to its low point on January 2 of 5868.55—making the downside look much more like a trim, less than a haircut, and nowhere near correction territory from an index perspective.
Even as things improve there can be setbacks or unrealistic expectations that stir the pot but a detour does not usually a journey end.
This week investors will see another abridged week (closed on Thursday for President Jimmy Carter’s State Funeral in Washington) focused on a brace of key economic data to be released throughout the week.
Among the data points to be pondered will be S&P Global US Services PMI, durable goods orders, the JOLTS jobs openings, the ISM services index, the ADP employment change, and FOMC meeting minutes culminating with Friday that will bring the non-farm payroll survey along with the unemployment rate, hourly earnings, and the labor force participation rate.
Beyond the data, investors will be anticipating the week that follows this one when Q4 S&P 500 earnings season gets unofficially underway when the big banks begin to report on January 15.
Thus far, just 19 or less than 4% of the S&P 500’s companies have reported results. Way too early to foresee the tenor of the season.
We would expect the potential for volatility to remain on the landscape much as it was last year as a transitioning phase continues in monetary policy and near term while the markets labor the distance between now and inauguration day less than three weeks away.
Volatility can surface unexpectedly anytime and often when change is happening. Even as things improve there can be setbacks or unrealistic expectations that stir the pot but a detour does not usually a journey end.
In our view, the Fed this cycle has found support in the process to normalcy in an economy that persists in showing resilience. Business, the consumer, and the jobs market along with innovations in technology remain supportive of what remains so far a soft landing.
The equity markets ultimately look for revenue (sales) and earnings (profit) growth for direction, while the bond market looks for stability in interest rates.
Currently heightened geopolitical risk, historically high domestic government spending, the US border, and a degree of sticky inflation remain among the challenges ahead. It is our view that there’s enough risk and opportunity on the landscape to warrant the thought that the markets are likely to find traction to continue climbing the proverbial wall of worry in this New Year.
John Stoltzfus
Title:Chief Investment Strategist, Oppenheimer Asset Management Inc.
John is one of the most popular faces around Oppenheimer: our clients have come to rely on his market recaps for timely analysis and a confident viewpoint on the road forward. He frequently lends his expertise to CNBC, Bloomberg, Fox Business, and other notable networks.
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