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Last Week on Wall Street – January 25th, 2025

  S&P 500: +1.74%      DOW:  +2.15%       NASDAQ:  +1.62%      10-YR Yield: 4.62%

What Happened?

The shortened trading week delivered solid gains across U.S. equity markets, with the S&P 500 rising 1.7%, the Nasdaq Composite up 1.7%, and the Dow Jones Industrial Average leading with a 2.2% gain. Optimism surrounding President Donald Trump’s return to the White House and expectations of pro-business policies buoyed risk sentiment, pushing the S&P 500 to new record highs during the week. However, profit-taking on Friday led to a slight pullback, snapping a four-day winning streak for major indices, as investors were caution about elevated valuations. Relief that no formal tariff actions have been taken yet, combined with hopes for favorable fiscal and regulatory policies, fueled a broad-based rally.

At the sector level, the week saw energy and healthcare among the top performers. Energy stocks gained as oil prices continued to climb amid geopolitical tensions and comments from President Trump urging OPEC to lower oil prices. Healthcare was driven higher by strong results from companies like Novo Nordisk, which rallied on positive drug trial data. On the other hand, technology underperformed, with declines in major names like Nvidia and Texas Instruments, as disappointing guidance and profit-taking weighed on the sector. Consumer discretionary also faced headwinds, with several high-profile companies reporting weak outlooks.

Economic considerations remain central, with inflationary pressures persisting and the Federal Reserve expected to keep rates unchanged at its upcoming meeting. Manufacturing showed signs of recovery, moving back into expansion for the first time in months, while the services sector cooled slightly. Despite this, investor optimism about the economic outlook remains strong, with hopes for robust earnings and a resilient labor market. However, structural concerns such as high deficits, rising bond yields, and stretched valuations suggest volatility could increase as 2025 progresses. Markets now turn their focus to big tech earnings and Fed commentary, which could shape the near-term trajectory for both equities and bond yields.

US Labor Market Stays On Solid Footing Early In The Year

  • Weekly jobless claims increase 6,000 to 223,000
  • Unadjusted claims drop 68,135 to 284,222
  • Continuing claims rise 46,000 to 1.899 million 

The key takeaway – The number of Americans filing new unemployment claims rose slightly last week, increasing by 6,000 to a seasonally adjusted 223,000. Despite this uptick, labor market conditions remain stable, with economists noting minimal stress in job markets. Factors such as California wildfires and severe weather contributed to the modest increase in claims, while layoffs in manufacturing temporarily boosted figures in states like Michigan. However, unadjusted claims fell significantly across most states, suggesting no broad deterioration in the labor market. Analysts expect continued stability, supported by resilient hiring trends and wage growth outpacing inflation, which should keep the economy on track despite external challenges like natural disasters and geopolitical uncertainties.

The Federal Reserve is unlikely to cut interest rates at its upcoming policy meeting, given the labor market’s robustness and easing inflation concerns. Last month, the Fed reduced its projected rate cuts for 2025 to two, down from four previously expected, reflecting caution over inflationary pressures and the potential impact of immigration restrictions and tariffs. Hiring has slowed from its peak in 2023, but the economy still added 2.2 million jobs in 2024, averaging 186,000 per month. Continuing jobless claims, a proxy for hiring conditions, rose to 1.899 million, the highest since late 2021, highlighting challenges for job seekers in finding new positions. Despite these headwinds, the overall labor market remains resilient so far.

U.S. Homes Sales in 2024 Fell to Lowest Level in Nearly 30 Years

  • U.S. existing-home sales in 2024 fell to their lowest level since 1995, primarily due to high mortgage rates and rising costs like property taxes and insurance
  • Home prices remain elevated despite low sales, with the national median existing-home price in December at $404,400
  • Builders and increased inventory offer some optimism for 2025, with builders attracting buyers through mortgage subsidies and growing inventory levels

The key takeaway – U.S. existing-home sales in 2024 dropped to their lowest levels since 1995, marking the second consecutive year of sluggish performance, primarily due to high mortgage rates hovering between 6% and 8% since late 2022. Rising homeownership costs, including property taxes and insurance, further strained affordability, discouraging buyers despite slightly improving inventory levels. While December saw a third consecutive monthly increase in home sales, economists remain cautious, attributing the overall weak sales momentum to stubbornly high mortgage rates and limited inventory. Home prices remain elevated, with the national median price reaching $404,400 in December, up 6% from the previous year, largely due to a lack of sellers willing to trade low mortgage rates for higher ones.

Despite the challenging environment, some optimism persists as the spring selling season approaches. Builders are attracting buyers by offering mortgage subsidies, and inventory levels have grown compared to 2023, creating potential for marginal sales increases in 2025. However, structural issues like high interest rates and supply constraints continue to hinder the housing market. Both buyers and sellers face frustrations, with many delaying moves or turning to alternatives like refinancing when rates eventually drop. Economists anticipate only gradual improvement unless significant policy changes or rate cuts alter the current trajectory.

‘U.S. Businesses Are Starting 2025 In An Upbeat Mood,’ S&P Finds, As Trump Takes Reins Over The Economy

  • U.S. businesses have started 2025 with an optimistic outlook, driven by expectations that the new administration will implement policies to support stronger economic growth
  • The economy has been expanding robustly over the past two years, with growth nearing 3%, largely fueled by strong consumer spending
  • Rising price pressures and the potential impact of Trump tariffs remain key concerns for businesses and could affect future economic performance

The key takeaway – The U.S. economy is off to a strong start in 2025, with robust growth continuing at a pace of 2.5%-3%, buoyed by strong consumer spending and optimism among business leaders following Donald Trump’s re-election. The S&P Global surveys for January show that services, which make up a significant portion of the economy, remain in growth territory at 52.8, while manufacturing returned to expansion for the first time in seven months, with a reading of 50.1. Manufacturers reported the highest level of new orders in three years and increased hiring, signaling a potential rebound in the sector. Overall, the business sentiment reflects hope for a more business-friendly environment under the new administration, despite lingering challenges.

However, concerns about rising inflation pressures and the potential negative impacts of Trump’s proposed tariffs cast a shadow over the optimism. These tariffs could lead to higher costs, supply chain disruptions, and depressed sales, while elevated interest rates may continue to weigh on sectors like manufacturing and car sales. Although businesses are generally upbeat, the Federal Reserve’s limited capacity to cut rates further due to inflation risks could hinder economic momentum. While the overall outlook for 2025 is positive, with expectations of sustained above-average growth, businesses remain cautious about the challenges posed by rising price pressures and policy uncertainty. 

From Around the Watercooler