Don’t let your guard down! The market will face several major events at the beginning of 2025…
After a record year, investors expect U.S. stocks to continue their rally through mid-January, riding on seasonal momentum, when a slew of economic data and a transition of power in Washington could drive market volatility.
Michael Rosen, chief investment officer at Angeles Investments, said November through January is typically a strong period for the market.
In addition, U.S. stocks tend to perform well in the last five trading days of December and the first two days of January. This phenomenon is called the Santa Claus rally. Since 1969, this Santa Claus rally has pushed the S&P 500 up an average of 1.3%.
Over the past four sessions, the S&P 500 has gained 2.91% and the Nasdaq has risen 3.3%, boosting hopes of a repeat performance.
“The underlying data suggests this is likely to continue,” Rosen said.
However, how long this momentum lasts will depend on several forces that could drive the market in 2025.
The latest U.S. jobs data, due on Jan. 10, will offer investors a fresh perspective on the health and strength of the U.S. economy. U.S. job growth rebounded in November after setbacks related to hurricanes and strikes early in the year.
In addition, U.S. companies have also begun to release fourth-quarter financial reports, and market strength will be tested again.
Investors expect earnings per share to rise 10.6% in 2025, while growth of 12.16% is expected in 2024, according to LSEG, although excitement about President-elect Trump’s policies is expected to boost the outlook for some sectors such as banking, energy and cryptocurrencies.
“There’s hope that taxes and regulations will be lower or reduced next year, which will help support corporate profits, which are the main driver of the market,” Rosen said.
Trump's inauguration on January 20 next year may also bring some surprises to the market. He is expected to issue at least 25 executive orders on his first day in office, covering a range of issues from immigration to energy and cryptocurrency policy.
Trump has also threatened to impose tariffs on goods from China, levies on products from Mexico and Canada and crack down on immigration, which would create costs that businesses could ultimately pass on to consumers.
Helen Given, deputy head of trading at Monex USA, said a new administration always comes with a high level of uncertainty. She added that the impact of the Trump administration’s expected trade policies is likely far from fully priced into global currency markets.
“We’re looking ahead to see which of the proposed policies actually get implemented, and that may take a longer time,” Given said, adding that she expects it to have a big impact on currencies including the euro, Mexican peso, Canadian dollar and others.
The Federal Reserve's first monetary policy meeting of the year, scheduled for late January next year, may also pose a challenge to the rise in U.S. stocks.
On December 18, the Federal Reserve implemented its third interest rate cut this year and hinted at fewer rate cuts in 2025 due to an uncertain inflation outlook, which disappointed investors who expected rate cuts to boost corporate profits and valuations, causing the stock market to plummet.
However, this may not hinder the rise of alternative assets such as cryptocurrencies. Damon Polistina, head of research at investment platform Eaglebrook Advisors, said that the incoming pro-cryptocurrency Trump administration is adding many catalysts that are increasing the confidence of cryptocurrency investors.
This month, bitcoin prices surged to more than $107,000, driven by friendlier Trump policies.
Polistina added that “cryptocurrency is widely viewed as a risk asset. So the Fed rate cut is positive…Any positive economic data in early January next year will help maintain this momentum that we are seeing.”