Trump’s first actions to test the stock market

NEW YORK:

After closing accounts for a landmark year for U.S. stocks, investors expect seasonal momentum to pick up in mid-January, when a flurry of economic data and a power transition in Washington could get markets moving.

The S&P 500 is up about 25% in 2024 through Dec. 27, while the tech-heavy Nasdaq Composite, which topped 20,000 for the first time in December, is up more than 31%. On Friday, however, stocks sold off amid some gains and questions about the markets’ performance in January, according to analysts and traders.

“There are concerns that maybe the first part of (next) year might involve some repositioning and reallocation of funds and the ones that are trading today and next week are probably just trying to get a little bit of that going,” said Robert Pavlik, Senior. Portfolio Manager at Dakota Wealth.

Stocks tend to do well in the last five trading days of December and the first two days of January, a phenomenon called the Santa Claus rally, which has led the S&P to gain an average of 1.3% since 1969, according to the Stock Trader’s Almanac. . Despite Friday’s sell-off, for the past five sessions, the S&P is up 1.77%, while the Nasdaq is up 1.8%. How long the upward momentum lasts will depend on several forces that could help propel markets into 2025.

Monthly US employment data due on January 10 is expected to give investors a fresh look at the health and strength of the US economy. Job growth rebounded in November after setbacks related to hurricanes and strikes earlier in the year. The market’s strength will be tested again shortly after, when US companies begin reporting fourth-quarter earnings.

Investors expect earnings per share to grow 10.33% in 2025, compared with expected growth of 12.47% in 2024, according to LSEG data, although enthusiasm for President-elect Donald Trump’s policies is expected to boost the outlook for some sectors such as banking, energy and crypto.

“There is hope that taxes and regulations will be reduced or reduced next year, which will help support corporate earnings, which are what drive the market in the first place,” said Michael Rosen, Chief Investment Officer of Angeles Investments.

Trump’s inauguration on January 20 could also throw the markets some curve balls. He is expected to issue at least 25 executive orders on his first day on a range of issues from immigration to energy to crypto policy.

Trump has also threatened tariffs on goods from China and levies on goods from both Mexico and Canada, as well as cracking down on immigration, creating costs that companies could eventually pass on to consumers.

Helen Given, Associate Director of Trading at Monex USA, said new management always brings with it a great deal of uncertainty. There is also a good chance that the impact of the Trump administration’s expected trade policies is far from being fully priced into global currency markets, he added. “We’re looking ahead to see which of these policies will be implemented, which may be further down the line,” Given said, adding that she expects a big impact on the euro, the Mexican peso, the Canadian dollar and the Chinese yuan.