Written by Laura Matthews
NEW YORK (Reuters) – After closing records on a remarkable year for U.S. stocks, investors expect to benefit from seasonal momentum until mid-January when a series of economic data and a shift of power in Washington will move markets.
The index is up nearly 25% in 2024 through Dec. 27, while the high-tech Nasdaq Composite Index (), which topped 20,000 for the first time in December, is up more than 31%.
However, stocks on Friday saw a sell-off amid some profit-taking and questions about how markets will perform in January, according to analysts and traders.
“There are concerns that the first part of (next) year might involve some repositioning and reallocation of funds, and those that are trading today and next week are probably just trying to get ahead of that a little bit,” said Robert Pavlik, chief investment officer. Portfolio Manager at Dakota Wealth.
Stocks tend to do well in the last five trading days of December through the first two days of January, a phenomenon dubbed the Santa Claus Rise, which has led the Standard & Poor's to gain an average of 1.3% since 1969, according to Traders' Almanac. Stocks. .
Despite Friday's selloff, over the last five trading sessions, the S&P is up 1.77%, while the Nasdaq is up 1.8%.
How long the upward momentum lasts will depend on several forces that could help propel the markets in 2025.
US monthly employment data released on January 10 should give investors a fresh look at the health and strength of the US economy. Job growth rebounded in November after setbacks related to hurricanes and strikes earlier in the year.
The market's strength will be tested again soon after, when US companies begin reporting fourth-quarter earnings.
Investors expect 10.33% growth in earnings per share in 2025, versus an expected 12.47% rise in 2024, according to LSEG data, although excitement over President-elect Donald Trump's policies is expected to boost the outlook for some sectors such as banking, energy and cryptocurrencies. . .
“There is hope that taxes and regulations will be cut or reduced next year, which will help support corporate profits, which primarily drive the market,” said Michael Rosen, chief investment officer at Angeles Investments.
Trump's inauguration on January 20 could cause some volatility in the markets. He is expected to issue at least 25 executive orders on his first day on a range of issues from immigration to energy policy and cryptocurrencies.
Trump also threatened to impose tariffs on goods coming from China and duties on products from both Mexico and Canada, as well as crack down on immigration, creating costs that companies could eventually pass on to consumers.
New management always brings with it a high degree of uncertainty, said Helen Giffen, associate director of trading at Monex USA. She added that there is also a good chance that the impact of the Trump administration's expected trade policies will be far from fully priced in global currency markets.
“We are looking forward to seeing which of these proposed policies will actually be enacted, which may be in the near future,” Geffen said, adding that she expects a significant impact on the euro, Mexican peso, Canadian dollar and Canadian dollar.
The conclusion of the Federal Reserve's first monetary policy meeting of the year in late January could also challenge the rally in US stocks.
Stocks fell on December 18 when the Federal Reserve implemented its third rate cut of the year and signaled smaller cuts in 2025 due to uncertain inflation expectations, disappointing investors who expected lower interest rates to boost corporate earnings and valuations.
However, this could be beneficial for alternative assets such as cryptocurrencies. Damon Polestina, head of research at investment platform Eaglebrook Advisors, said the incoming crypto-friendly Trump administration adds a number of catalysts that boost cryptocurrency investor confidence.
It rose more than $107,000 this month on hopes of more Trump-friendly policies.
