New Year, New Opportunities: Wall Street Eyes Fresh Start
As the clock strikes 2025, investors are bracing for a promising year ahead, fueled by a new political landscape and anticipated interest rate cuts. The Dow E-minis are already up 274 points, or 0.64%, S&P 500 E-minis are up 42.5 points, or 0.72%, and Nasdaq 100 E-minis are up 190.5 points, or 0.90%.
A Stellar 2024: AI Hype and Trump’s Policies Drive Gains
Last year, the Federal Reserve’s easing of interest rates, combined with investor enthusiasm for artificial intelligence and expectations of companies benefiting from President-elect Donald Trump’s policies, propelled U.S. indexes to remarkable heights. The benchmark S&P 500 achieved its best two-year run since 1997-1998.
Earnings Expectations: A Key Driver of Growth
Equity valuations are currently above their long-term averages, but could be justified if corporate profits remain strong. According to LSEG data, earnings per share for S&P 500 companies are projected to rise 10.67% in 2025. Brokerages expect the S&P 500 to reach levels between 6,000 and 7,000 points this year.
Interest Rates and Inflation: A Delicate Balance
However, the rally ended with the S&P 500 and the Dow posting monthly declines in December, as markets priced in Trump’s policy proposals to be inflationary and likely to slow down the Fed’s policy easing pace this year. With inflation still above the 2% target, traders see the central bank leaving interest rates unchanged at its meeting later this month.
Market Volatility: A Looming Concern
Markets are also weighing the likelihood that the new administration could issue more debt to finance its policies, which could worsen market volatility. The yield on the 10-year benchmark Treasury note is hovering near an eight-month high.
A Goldilocks Scenario: Hopeful but Cautious
“Investors are hopeful that a goldilocks scenario will be the story of 2025, amid promises of lower taxes and deregulation under a second Trump presidency,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown. “But with fresh trade wars looming, if the worst of the tariff threats are imposed, the bears could be back to disrupt what has been a fairytale performance for the U.S. stock market.”
Economic Data: A Focus on Labor Market
Among the first datasets of 2025, a Labor Department report showed the number of Americans filing new applications for jobless benefits came in at 211,000 for last week, compared with estimates of 222,000. A final estimate on manufacturing activity in December is due after markets open, but the main focus will be a slew of labor market data next week.
Premarket Trading: Tesla and Megacaps Shine
In premarket trading, Tesla is up 1.2% ahead of its quarterly deliveries numbers. Among other megacaps, Meta and chip stocks Nvidia and Broadcom climbed 1.1%, 1.3%, and 2.3%, respectively. SoFi Technologies dropped 1.5% after brokerage KBW downgraded the stock to “underperform” from “market perform”.
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