By Pete Biebel, Senior Vice President, Senior Investment Strategist
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Here’s a little factoid that could be fun to know as the new year begins: The number 2025 is equal to 45 squared. It’s the first squared year since 1936 (442) and there won’t be another one until 2116 (462). The number 2025 is also equal to the sum of the cubes of the first nine whole numbers (13+23+33+43+53+63+73+83+93). Hopefully, 2025, beyond being an arithmetic oddity, will be a great year in several respects. It’s hip to be square.
Before we ring in 2025, I want to take a minute to wring out 2024. The stock market performance last year was pretty spectacular and probably much stronger than anyone expected, especially following a great year in 2023. The NASDAQ Composite Index (COMP) led the major averages with a total return (including dividends) of 29.57% in 2024. COMP traded briefly above the 20,000 level for the first time in mid-December before sliding back a bit to end the year at 19,311. That index in particular benefitted through the year from investors’ seemingly insatiable appetite for mega-cap tech stocks and stocks of companies with exposure to artificial intelligence (AI) products and services.
The S&P 500 Index (SPX) ended 2024 with a total return of 25.02%. That made the 2023-2024 stretch the best two-year gain since 1998. Among that index’s accomplishments last year were 57 new highs and reaching the 6100 level for the first time. The Dow Jones Industrial Average (DJIA) chalked up a total return of just under 15% for 2024. Indicative of the impact that concentrated strength in mega-cap tech stocks had, non-cap-weighted indices and small-cap stock indices struggled to keep up. The equal-weight S&P 500 index gained a respectable 14% for the year and the Russell 2000 Index of small-cap stocks (RUT) had a total return of 11.54% in 2024.
Five industry sectors racked up returns of more than 20% in 2024. The best of those bests was the S&P 1500 communication services sector, which produced a total return 39.58%. The consumer discretionary (+32.95%) and financials (+31.36%) sectors were neck-and-neck for second-best. Only the materials sector failed to produce a material gain in 2024.
Unfortunately, that blockbuster of a year went into a bit of a stupor in late December. In what is a seasonally strong month, the averages all topped-out in early December. Over the past five weeks, only two of the 11 S&P industry sectors (consumer discretionary and technology) had net gains. Five sectors (utilities, industrials, energy, real estate and materials) had net losses of 7% or more since the beginning of December. The post-election enthusiasm that powered stocks higher on hopes for lower taxes and reduced regulation apparently realized that any positive impact from those promised policies would not accrue for months, if not years, to come.
And Santa himself seems to have been a bit confused. The traditional Santa Claus rally (the last five trading days of the year and the first two of the new year) fizzled for the second year in a row. During that seasonal stretch, SPX has gained an average 1.3% and has posted a gain more than three-quarters of the time over the past 70 years. This time, SPX muddled through those seven sessions with a net loss of 0.5%.
What likely contributed to Santa’s bewilderment is the continuing trend of higher long-term Treasury note and bond yields. My theory has been that long-term rates would be higher for longer in spite of the U.S. Federal Reserve (Fed) cutting its target overnight lending rate. The yield on 10-year Treasury notes was at its lowest level in more than a year in mid-September as the Fed was about to make its first rate cut. Since then, the Fed has lowered its target rate by 100 basis points, yet the 10-year T-note yield has increased by about 90 basis points to its highest levels since last spring. For months, the stock market hasn’t been too concerned, hoping that the higher rates were just transitory. But, if those long rates continue to increase with the speed and persistence they’ve seen lately, then the stock market will eventually feel the impact.
Now, we’re back to square one. The holiday haze will begin to clear. In the coming weeks we’ll find out if the market is able to shake off the late-December lethargy. A new earnings season will begin in a couple weeks. At its current valuation, the stock market is heavily invested in its expectation for strong earnings growth. Consensus expectations are for about 12% year-over-year earnings growth in the fourth quarter and for another 15% increase in 2025. Be on the lookout for any companies that fall short of estimates or that project weaker guidance. The market will also be watching for political developments as the new administration takes office. All eyes will be focused on the potential new impacts of the promised new policies of the new administration in the new year.
The new year always brings a bevy of analyst guesstimates for the year-end SPX level. Just about every analyst projection I’ve seen is expecting stock market gains in 2025. The forecasts have set year-end targets for SPX from 6400 to 7000. Maybe I’m not as hip as those analysts, but I’m far less optimistic about stock market performance in the year ahead. I’ll be watching two specific factors over the next two weeks. First, as I’ve written repeatedly in recent months, keep an eye on the 10-year T-note yield. If that yield continues to climb beyond the 4.6% level, then the stock market is going to have trouble making any forward progress. Second, watch the ratio of the daily advancing-to-declining issues on the New York Stock Exchange. Following very poor market breadth in December, the advance/decline line has had significant deterioration. If more days in the next two weeks have more declining issues than advancers, and especially if it’s by a wide margin, then that indicator would be flashing a very negative signal.
SPX ended last week at 5942.47, just below its 50-day moving average (5945). Last week’s intraday low (5869) was the lowest level the index has seen since Election Day. The market will be telling us a lot this week if SPX sees sustained trading beyond either of those levels. The key level for SPX longer-term is around 5700. Taking out that level would put the bulls into a daze.
The start of 2025 features a blizzard of economic reports on this week’s calendar. The late-week employment data seems likely to have the greatest potential impact.
We wish you a very happy, healthy and hip 2025.
| Economic Calendar (1/6/25 – 1/10/25) | Previous | Consensus | |
| Monday 1/6/2025 | S&P Final U.S. Services PMI, December | 58.5 | 58.5 |
| Factory Orders, November, M/M | +0.2% | -0.3% | |
| Durable Goods Orders, November, M/M | -1.1% | -0.4% | |
| Durable Goods Orders ex-Transportation, November, M/M | -0.1% | +0.3% | |
| Tuesday 1/7/2025 | U.S. Trade Deficit, November | $73.8B | $78.4B |
| ISM Services, December | 52.1 | 53.4 | |
| JOLTS Job Openings, November | 7.744mm | 7.745mm | |
| Wednesday 1/8/2025 | ADP Employment, December | 146K | 130K |
| Initial Jobless Claims | $19.2B | $10.6B | |
| Continuing Claims | 1,844K | 1,862K | |
| FOMC December Meeting Minutes | |||
| Thursday 1/9/2025 | National Day of Mourning for Jimmy Carter, Stock Market Closed | ||
| Wholesale Inventories, November, M/M | +0.2% | -0.2% | |
| Friday 1/10/2025 | Employment Report, Non-Farm Payrolls, December | 227K | 155K |
| Unemployment Rate, December | 4.2% | 4.2% | |
| Consumer Sentiment, December | 74.0 | 74.0 | |
Links to previously published commentaries can be found at benjaminfedwards.com/Latest Investment Insights/Market Commentary/Market