By Laura Matthews
NEW YORK (Reuters) -After closing the books on a banner year for U.S. stocks, investors expect to capitalize on the seasonal momentum in mid-January, when a slew of economic data and a transition of power in Washington could move markets.
The index rose about 25% in 2024 through December 27, while the tech-heavy Nasdaq Composite index (), which surpassed 20,000 for the first time in December, is up more than 31%.
However, shares sold off on Friday amid some profit-taking and questions about how markets might perform in January, analysts and traders said.
“There are concerns that the first part of (next) year may see some repositioning and reallocation of funds, and those trading today and next week are probably trying to get ahead of that a little bit,” says Robert Pavlik , senior portfolio manager at Dakota Wealth.
Stocks typically do well during the last five trading days of December and the first two days of January, a phenomenon called the Santa Claus rally that has averaged S&P gains of 1.3% since 1969, according to the Stock Trader’s Almanac taken care of. .
Despite Friday’s sell-off, the S&P rose 1.77% over the last five trading sessions, while the Nasdaq rose 1.8%.
How long the upward momentum will last will depend on several forces that could help boost markets in 2025.
Monthly US employment data on January 10 should give investors a fresh look at the health and strength of the US economy. Job growth rebounded in November after hurricane- and strike-related setbacks earlier this year.
The market’s strength will be tested again shortly afterwards when US companies report their fourth quarter earnings.
Investors expect earnings per share growth of 10.33% in 2025, up from an expected increase of 12.47% in 2024, according to LSEG data, although excitement over President-elect Donald Trump’s policies is expected to weaken the outlook for some sectors such as banking, energy and crypto will improve. .
“There is hope that taxes and regulations will be reduced or reduced next year, which will help support corporate profits, which is driving the market in the first place,” said Michael Rosen, chief investment officer at Angeles Investments.
Trump’s inauguration on January 20 could also throw some curve balls into the markets. He is expected to issue at least 25 executive orders on his first day on a range of issues from immigration to energy and crypto policy.
Trump has also threatened tariffs on goods from China and levies on products from both Mexico and Canada, as well as crackdowns on immigration, creating costs that companies can ultimately pass on to consumers.
Helen Give, associate director of trading at Monex USA, said a new administration always brings a high degree 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, she added.
“We are looking ahead to see which of these proposed policies are actually implemented, and that could be further down the pipeline,” Give said, adding that she expected a big impact on the euro, the Mexican peso, the Canadian dollar and the .
The conclusion of the Federal Reserve’s first monetary policy meeting of the year in late January could also pose a challenge to the rally in US stock markets.
Stocks tumbled on December 18 as the Fed made its third rate cut for the year and announced fewer cuts in 2025 due to an uncertain inflation outlook, disappointing investors who had expected lower interest rates to boost corporate earnings and valuations.
Still, that could be good for alternative assets like cryptocurrencies. The incoming crypto-friendly Trump administration is contributing to a number of catalysts boosting crypto investor confidence, says Damon Polistina, head of research at investment platform Eaglebrook Advisors.
rose above $107,000 this month on hopes for friendlier Trump policies.
