SPX Spotlight - Wednesday, Jan 1, 2025: Happy New Year
We closed 2024 with 23% gains on S&P500 and 30% on Nasdaq Composite. What does the year 2025 have for us traders?
Introduction
The S&P 500 closed out a remarkable year on a subdued note, dipping 0.4% on the final trading day of 2024. Despite the lackluster finish, the index posted an impressive 23.3% gain for the year, marking its second consecutive year of 20%+ returns.
Market Drivers and Economic Reports
Economic Growth
The U.S. economy is expected to maintain solid growth in 2025, albeit at a slower pace compared to 2024. Goldman Sachs Research forecasts 2.5% real GDP growth for 2025. The Conference Board projects a 2.0% year-over-year expansion, slightly lower than their 2024 estimate.
Corporate Earnings
Earnings growth is anticipated to be a primary driver of stock returns in 2025. JPMorgan analysts expect double-digit earnings growth for the S&P 493 (S&P 500 excluding the Magnificent Seven). Goldman Sachs predicts an 11% increase in S&P 500 earnings for 2025.
Inflation and Monetary Policy
Inflation is expected to cool to 2.4% by the end of 2025, according to Goldman Sachs Research. The Federal Reserve may achieve its neutral Fed Funds rate target range of 3.00-3.25% in October 2025, later than initially anticipated.
Artificial Intelligence
The AI sector is expected to continue driving opportunities across various industries. BlackRock analysts see the AI buildout and adoption creating opportunities across sectors.
Geopolitical and Domestic Policy Risks
Analysts warn that geopolitical tensions and domestic policy uncertainties, including the potential impact of a new administration, could lead to increased market volatility.
Technical Analysis
Bull/Bear Case
We are resting at a support and a long holding trendline as discussed in our previous article.
We may experience a false breakout into liquidity zone before we try going higher. 5,850 would be a key level for the market to hold. Any sign of weakness and close below liquidity zone could mean a bearish move.
On the upwards, we have multiple resistance level that the market could hit and hold.
Market Sentiment and Key Indicators
On hourly chart, VIX has been huggin the lower trendline. If VIX breaks below the trendline, we can expect the markets to make moves higher.
What to Expect in 2025
Moderate Stock Market Gains: Wall Street strategists project the S&P 500 to reach a median target of 6,600 by the end of 2025, representing a 9% gain from current levels.
Broader Market Participation: Bank of America analysts expect the equal-weighted S&P 500 to outperform its capitalization-weighted counterpart, suggesting a broadening of market gains beyond the top performers.
Potential Volatility: Despite overall optimistic projections, analysts anticipate a potentially turbulent market in 2025 due to various economic and political uncertainties.
Sector Rotation: As AI adoption spreads, opportunities may arise across different sectors, potentially leading to a shift in market leadership.
Global Economic Considerations: The United Nations will release its 2025 World Economic Situation and Prospects (WESP) report on January 9, which will provide further insights into the global economic outlook.
Closing Thoughts
While the S&P 500's performance in 2024 was undoubtedly impressive, it's important to remember that past performance doesn't guarantee future results.
What's your take on the market's prospects for 2025? Do you believe we're poised for another year of strong gains, or are you preparing for increased volatility? Share your thoughts in the comments below!