Weekly Economic Update: January 27, 2025
Presented by Nicholas Wealth Management
Was it something he said?
Markets continued their advance last week after being closed in observance of Martin Luther King, Jr.’s birthday on Monday — the same day that the new Trump administration assumed office in Washington, D.C. As soon as markets opened on Tuesday, they took off and continued to rocket upward until finally taking a break and cooling off a bit on Friday. Along the way, we set new records in the S&P 500, with the index closing above 6,100 (6,118.71, to be exact) for the first time ever on Thursday and breaking its prior record of 6,090.27 on Dec. 4, 2024.1 The benchmark ended the week above 6,100 despite some profit-taking on Friday.
The Dow also made up a lot of ground, rallying to over 44,500 as it got closer to its all-time record of 45,014.04 set on Dec. 4, 2024.2 The Nasdaq was no slouch either, closing over the psychologically significant 20,000 level twice last week but falling just short of its record of 20,173.90 set on Dec. 16.3 Both the Dow and Nasdaq are positioned to push toward new highs in the weeks ahead. For the week, the Dow delivered an impressive +2.2% and the Nasdaq ended up 1.7%. After bouncing around trying to find direction in the initial weeks of January, markets embraced optimism and took off, at least temporarily. The Dow is up 4.4%, the S&P 500 is up 3.7% and the Nasdaq is up 3.3% for the year.4,5,6
What sparked the mini rally? Well, nothing really — other than we had a change in government and optimism has taken hold, at least for the moment. Trump’s initial slew of executive actions and appointments give the impression that things are moving and changing.7 Mr. Trump even told the World Economic Forum (WEF) that he would “demand that interest rates drop immediately,” and was looking for the Saudis to produce more oil in order to lower prices.8 Can he do that? It’s highly unlikely — but the markets wanted to roll and that was good enough.
Then there was the start of earnings season (more below) with some solid results early, which further bolstered confidence. Plus, artificial intelligence (AI) stocks rose after a $500 billion partnership between Oracle, OpenAI and SoftBank for the expansion of AI infrastructure was announced on Tuesday.9
January has turned into a positive month for markets and we’ve had a strong start to the year. The jury is still out on how things advance from here — but for now, optimism is better than the alternative.
Time to take a breath and ground ourselves
We are forever being subjected to hype, from being told to watch the latest extravaganza or sporting event on TV to constantly being reminded of all the things we don’t have or need to change to make our lives better. The extravaganzas rarely live up to the hype; just think about the Jake Paul/Mike Tyson deal on Netflix or even the recent college football playoffs.10 There were a few decent moments, but most folks were left amazed by how much of a mess things have become.
Markets participate in hype, as well. Right now, the concern is that we’re in one of those cycles where everyone seems to be wearing rose-colored glasses. We’re coming off the best back-to-back years in the stock market since 1998, notching nearly 45% in gains the last two years combined on the S&P 500.11 We’ve had a phenomenal run the past two years and it’s hard to think that type of performance will persist. It’s possible — but highly unlikely.
Our advice is to revisit your plan, review your appetite for volatility and reconsider your risk tolerance. Odds are, one or more of those things are not aligned with your portfolio. We suggest that you take gains early so you have time to help manage your tax situation, rebalance back to your targets and make sure your goals are aligned. We have an opportunity to take advantage of what the markets have given us, and it would be a shame to squander it.
Coming this week
- After several four-trading-day weeks, we finally have a full week of trading!
- We’ll see new home sales on Monday and the S&P Case-Shiller home price index on Tuesday.
- Tuesday will also bring the latest consumer confidence numbers plus the start of the first Federal Reserve meeting of 2025. The Fed is expected to leave rates unchanged.12 What will be interesting will be Chairman Jerome Powell’s post-meeting conference comments; we’ll need to see if the recent Trump announcements on rates will have any impact on the Fed’s actions.
- On Friday, we’ll get personal consumption expenditures (PCE) and Core PCE, the Fed’s preferred measures of inflation. Both are expected to either rise slightly or remain the same, which would signal little to no improvement in the inflation fight.13 We’ll also get personal spending and income, which will give a glimpse into the health of the consumer.
- Earnings continue this week, with 16% of S&P 500 companies reporting actual results. As of Jan. 24, 80% of the companies have reported positive earnings per share (EPS) and 62% have reported positive revenues.14 Earnings growth for the S&P 500 during the fourth quarter is 12.7%. If that’s the actual growth rate for the quarter, it will mark the highest year-over-year earnings growth rate reported by the index since the last quarter of 2021.
Sources:
1 CNBC. “S&P 500 Index.” https://www.cnbc.com/quotes/.SPX. Accessed Jan. 26, 2025.
2 CNBC. “Dow Jones Industrial Average.” https://www.cnbc.com/quotes/.DJI. Accessed Jan. 26, 2025.
3 CNBC. “NASDAQ Composite.” https://www.cnbc.com/quotes/.IXIC. Accessed Jan. 26, 2025.
4 Morningstar. “DJ Industrial Average PR USD.” https://www.morningstar.com/indexes/dji/!dji/quote. Accessed Jan. 26, 2025.
5 Morningstar. “S&P 500 PR.” https://www.morningstar.com/indexes/spi/spx/quote. Accessed Jan. 26, 2025.
6 Morningstar. “NASDAQ Composite PR USD.” https://www.morningstar.com/indexes/xnas/@cco/quote. Accessed Jan. 26, 2025.
7 Jeff Arnold. News Nation. Jan. 24, 2025. “A look at executive orders President Trump has signed.” https://www.newsnationnow.com/politics/donald-trump-executive-orders-signed/. Accessed Jan. 26, 2025.
8 Echo Wang, Marwa Rashad and Trevor Hunnicutt. Reuters. Jan. 24, 2025. “Trump tells Davos he will demand lower interest rates, oil prices.” https://www.reuters.com/world/trump-remotely-address-business-political-leaders-davos-forum-topics-unclear-2025-01-23/. Accessed Jan. 26, 2025.
9 Kyle Wiggers. TechCrunch. Jan. 21, 2025. “OpenAI teams up with SoftBank and Oracle on $500B data center project.” https://techcrunch.com/2025/01/21/openai-teams-up-with-softbank-and-oracle-on-50b-data-center-project/. Accessed Jan. 26, 2025.
10 Schuyler Dixon. PBS News. Nov. 16, 2024. “Jake Paul beats Mike Tyson in boxing match that didn’t meet the hype.” https://www.pbs.org/newshour/nation/jake-paul-beats-mike-tyson-in-boxing-match-that-didnt-meet-the-hype. Accessed Jan. 26, 2025.
11 J.B. Maverick. Investopedia. Dec. 26, 2024. “S&P 500 Average Returns and Historical Performance.” https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp. Accessed Jan. 26, 2025.
12 CME Group. “FedWatch.” https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html. Accessed Jan. 26, 2025.
13 MarketWatch. “This Week’s Major U.S. Economic Reports & Fed Speakers.” https://www.marketwatch.com/economy-politics/calendar. Accessed Jan. 26, 2025.
14 FactSet. Jan. 24, 2025. “Earnings Insight.” https://advantage.factset.com/hubfs/Website/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_012425.pdf. Accessed Jan. 26, 2025.
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