Market Update: January 6, 2025
In a New Year holiday-abbreviated week, economic data included an improved (but still contractionary) ISM manufacturing report, minimally-changed construction spending, and continued movement higher for residential home prices.
Equities fell globally last week, in contrast to a positive year (to say the least, in the U.S.). Bonds gained a bit as interest rates settled from recent volatility. Commodities gained along with rising prices for crude oil and gold.
U.S. stocks finished 2024 strongly, with the S&P up over 25%, representing the second straight year of gains of 20%+. Though, the full short week ended negatively, with what appeared to be some profit-taking, late seasonal adjustments, and a downgrade of Q4 U.S. economic growth as measured by the Atlanta Fed GDPNow (down from 3.1% to 2.6%). Small caps, on the other hand, had a solidly positive week. In the S&P 500 by sector, energy led with gains of over 3%, followed by utilities. The largest declines were experienced by materials, consumer discretionary (primarily volatility with Tesla), and consumer staples, each down at least a percent.
Some investors nervously await the outcome of various forms of the ‘January effect,’ whether it be the stock market performance for the entire month, or only the first 5 or 10 days. Obviously, this sample is too short to get a handle on 2025’s fundamentals and likely surprises to come, but from a behavioral standpoint, it can begin to set a tone for market sentiment.
Foreign stocks were down as well, with flattish results in the U.K. tempering sharper declines in Europe and Japan, as well as emerging markets. These were not helped by an approximate one percent rise in the value of the U.S. dollar for the week. Higher inflation, notably in Spain, led to hawkish rhetoric and chances of fewer than expected ECB rate cuts over the coming year. Chinese stocks were led downward by weaker manufacturing data, which came in just above the neutral 50 level and continues to frustrate investors looking for a growth catalyst.
Bonds fared positively for the week, as interest rates fell back a bit. High yield and floating rate bank loans outperformed government bonds slightly, while unhedged foreign bonds were held back by a stronger U.S. dollar last week.
Commodities rose as a whole, led by gains in energy and precious metals, offsetting declines in industrial metals. Crude oil prices rose nearly 5% last week to $74/barrel, with hopes for higher demand this coming year were coupled with concerns over increased sanctions on Iran, which would reduce market inventories.
The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness. All information and opinions expressed are subject to change without notice. Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.