S&P 500 (^GSPC) just posted its best week since the November election as a lower-than-expected inflation reading eased concerns that the Federal Reserve could rule out cutting interest rates for all of 2025.
On the week, the S&P 500 jumped more than 3%, while the tech-rich Nasdaq Composite (^IXIC) grew by more than 2.6%. The Dow Jones Industrial Average (^DJI) led the gains, jumping nearly 4%.
The light economic calendar is set to greet investors with updates on activity in the services and manufacturing sectors, as well as updates on consumer sentiment slated for release.
In terms of corporate news, 43 S&P 500 companies are expected to report quarterly results highlighted by Netflix (NFLX), United Airlines (UAL), Johnson & Johnson (JNJ), and 3M Company (MMM).
SNP – Delayed quote•USD
Close: Jan 17 at 5:11:45 PM EST
^GSPC^DJI ^IXIC
Trump is scheduled to be sworn in for a second term as president on Monday. US stocks have looked sluggish at times over the past few weeks as rates rise and the debate over whether the Federal Reserve will cut interest rates 2025 sent the S&P 500 to its lowest levels since the election.
But a a better than expected inflation reading on Wednesday helped U.S. markets recover, and Bank of America investment strategist Michael Hartnett believes stocks in the S&P 500 will be “protected” from further declines by President-elect Donald Trump in the coming months.
During his first term as president, Trump viewed the stock market as a barometer for your own the success of the administration. Many investors expect Trump to remain vulnerable to a pullback in U.S. stocks during his upcoming turnaround.
A rise in certain “Trump shops” such as small caps, energy stocks and financials had seizures leading up to the inauguration. This was an early appetizer for what many believe will be the theme of the stock market in 2025.
“Volatility in January ahead of Trump’s inauguration on 1/20 reinforces the fundamental view of an even more volatile year ahead,” Julian Emanuel, who heads the equity, derivatives and quantitative strategy team at Evercore ISI, wrote in a note to clients on Thursday in the evening.
Emanuel, who predicts the S&P 500 will end 2025 at 6,800, or about 13% higher than current levels, continues to argue that the Trump administration will lead to a continued shift between “risk-on” and “risk-off” sentiment among investors.
A clip of President-elect Donald Trump is seen as traders work at the New York Stock Exchange (NYSE) on January 2, 2025 in New York. (TIMOTHY A. CLARY/AFP via Getty Images) ·TIMOTHY A. CLARY via Getty Images
Last week we noted warmer than expected December business report discussed whether or not the Fed’s rate hikes will come back into the discussion.
A lower-than-expected inflation reading for December eased those fears. Bank of America Securities senior U.S. economist Aditya Bhave wrote in a Jan. 10 note to clients that the conversation with the Fed “go hiking.”
After the inflation data for December was released on January 15, Bhave he told Yahoo Finance the report “reduces the risks of hiking.” His team, however, believes the Fed will remain on hold for the foreseeable future.
Markets are likely to take a breather from the Fed’s discussion in the week ahead as no major economic data releases are expected and the central bank enters its “blackout period”, during which none of its officials speak publicly before its next policy decision on the 29th. January.
As of Friday afternoon, according to data from Bloomberg, markets stood in the range of one to two Fed rate cuts this year.
Fourth quarter earnings season kicked off in earnest last week with reports from the nation’s largest banks. mainly, the company’s results were better than expected. FactSet data shows the S&P 500 is now aiming for 12.5% year-over-year earnings growth this quarter, compared with the 11.5% expected last week.
“Although early, this is a great start to the reporting period where we expect better than average aggregate results and remain positive on the earnings outlook,” Citi U.S. equity strategist Scott Chronert wrote in a note to clients on Friday.
Earnings season will continue this week with reports from 43 S&P 500 companies, led by large-cap tech giant Netflix. But whether earnings will really be the focus in the coming weeks will be tested as political headlines are expected to pile up as Trump takes the oath of office on Monday.
“We expect the policy noise to pick up next week with Monday’s inauguration and several reportedly planned executive orders,” Chronert added. “In the short term, markets will have to contend with increasing uncertainty in fiscal, trade and monetary policy, even if [earnings] reports are solid.”
For now, at least one of the market winds has cooled. In the past week, the yield on 10-year bonds (^TNX), which was increasing and weighing on stocksit fell almost 20 basis points to 4.61%.
Whether or not the conversation surrounding Trump’s policies will push bond yields higher again will be a key story to watch in the coming week.
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Monday
Markets are closed for Martin Luther King Jr. Day as President Trump takes the oath of office.
Tuesday:
Economic data: No significant announcements of economic data.
Earnings: Netflix (NFLX), the 3M company (MMM), Capital One (COF), Charles Schwab (SCHW), DR Horton (DHI), KeyCorp (KEY), Interactive Brokers Group (IBKR), United Airlines (UAL), Zions Bancorporation (ZION)
Wednesday
Economic data: MBA mortgage applications, week ending January 17 (+33.3% earlier); Leading index, December (-0.1% expected, +0.3% before)
Economic data: Initial jobless claims, week ending Jan. 18 (previously 217,000); Kansas City Fed. Manufacturing activity, January (-4 previously);
Earnings: American Airlines (AAL), Alaska Airlines (ALK), CSX Corporation (CSX), Freeport-McMoRan (FCX), GE Aerospace (GE), intuitive surgical (ISRG), Texas Instruments (TXN), Union Pacific Corporation (LPG)
Economic data: S&P Global PMI for US manufacturing, preliminary data for January (49.4 previous); S&P Global Services PMI, January preliminary (56.8 prior); S&P Global US composite PMI, January (55.4 previously); University of Michigan Consumer Sentiment, January final (73.2 ago); Sales of existing homes, December (expected 1.2%, previously 4.8%)
Earnings: American Express (AXP), First Citizens BancShares (FCNCA), NextEra Energy (BORN), Verizon (VZ)
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
