The Week That Was, The Week Ahead: Macro & Markets, January 5, 2025

Everything to Know about Macro and Markets

Despite Friday’s strong upward trend, stocks ended the week with losses. The S&P 500 (SPX) was down by 0.48% and the Dow Jones Industrial Average (DJIA) decreased by 0.6%. Meanwhile, the tech benchmarks Nasdaq Composite (NDAQ) and Nasdaq-100 (NDX) declined by 0.51% and 0.68%, respectively.

“As January Goes, So Goes the Year”?

On Friday, stocks staged a belated Santa Rally, reversing five days of losses as dip buyers stepped in. The strong surge at the end of the week alleviated some investor worries stemming from the S&P 500’s weakest performance over the three last trading days of the year since the 1950s. All in all, this was the worst December since 2018.

Friday’s gains seemed to dispel the fears connected to the old Wall Street maxim that the absence of the Santa Rally leads to a bear market, driving investors to refocus on the “January Barometer.” The theory, which originated back in the 1972, suggests that January’s market behavior is a predictive indicator of its performance for the rest of the year.

Historically, the “January Barometer” has been accurate about 75% of the time, although many are skeptical, to say the least, about its viability as a forecasting tool, due to the many factors influencing stock returns in any given year. With all due respect to seasons past, investors should continue watching economic reports and other developments directly influencing Federal Reserve’s policies, corporate earnings, and market sentiment.  

So Much for International Diversification

Although it ended on a sour note, 2024 still was a very successful year for investors, as the S&P 500 locked in 57 record highs. Moreover, the benchmark index achieved a second consecutive year of gains of over 20%, something that the market hasn’t seen since 1998.

The fact that the S&P surged by over 60% from its October 2022 lows with no meaningful correction along the way may seem astonishing. However, the outstanding resilience of the economy and the U.S. global technological dominance are expected to support further outperformance of domestic stocks versus the international ones this year, as the almighty American consumer and AI-themed exuberance attract investors.  

Megacaps Continue to Lead

As in 2023, technology mega-caps led the way, despite the considerable broadening of the rally in the second half of 2024. Still, the megacaps’ contribution to the market’s performance is hard to overstate. The Magnificent Eight stocks – Apple (AAPL), Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOGL), Amazon (AMZN), Meta Platforms (META), Tesla (TSLA), and Broadcom (AVGO) – drove 73% of the SPX’s gains in 2023, and contributed nearly 60% in 2024. Without these giants, the index would have returned around 6.5% and 9.5% for 2023 and 2024, respectively.

Analysts broadly expect that the stocks will continue rising this year, albeit at a more modest pace, driven by economic strength that is projected to help the non-Magnificent earnings rebound, which, in turn, would support further broadening of the rally. However, a stronger-than-expected economy could put a lid on the Fed’s rate decreases, which could add to the large caps’ relative attractiveness due to their proven ability to thrive despite higher borrowing costs.  

But even if the rally broadens meaningfully, the tech megacap leadership isn’t going anywhere. Mag8 stocks now represent over 34% of the S&P 500’s market cap, up from under 30% in January 2024, meaning that even small movements in these stocks have a notable influence on the index. Moreover, investor bullishness towards the Magnificent bunch and other large-cap tech leaders was evident through all the market declines over the past two years, when dip buyers rushed in every time their valuations dropped even slightly.    

Stocks That Made the News

▣ The Energy sector was the best performer over the past week with a surge of over 3%. This performance was led by a jump in oil and gas prices on anticipation of a cold snap in the U.S. and the expectations that the incoming Trump administration will impose harsher sanctions on countries like Iran, Venezuela, and Russia, along with stronger-than-expected U.S. manufacturing data.

▣ Consumer Staples stocks, particularly those of alcoholic beverages producers such as Constellation Brands (STZ) and Molson Coors Beverage (TAP), fell after the U.S. Surgeon General warned of those drinks’ link to cancer.   

▣ Tesla (TSLA) strongly rebounded on Friday, reversing its previous slump caused by its first-ever drop in annual deliveries. The surge back in shares was driven by a price-target upgrade from Wedbush analysts, who said that the company is on its path to rise to a $2 trillion valuation over the next 12 to 18 months. Several other Wall Street analysts have also raised their PTs in the past several days.

▣ Apple (AAPL) was the worst performer among the Magnificent leaders last week following the news that shipments to China of non-Chinese smartphones, including iPhones, fell by over 47% YoY in November. That drop followed a similar decline in October, driven by Chinese economic weakness and competition from its domestic brands.      

▣ Super Micro Computer (SMCI) soared by over 8% last week after the company’s CEO announced that SMCI will meet the updated February 25 deadline issued by the Nasdaq to avoid delisting.

Upcoming Earnings and Dividend Announcements

The Q4 2024 earnings season will begin in earnest in mid-January, but there are still some earnings releases scheduled for this week. The reporting companies are RPM International (RPM), Albertsons Companies (ACI), Jefferies (JEF), Delta Air Lines (DAL), Constellation Brands (STZ), and TD SYNNEX Corporation (SNX).

Ex-dividend dates are coming this week for JPMorgan Chase & Co. (JPM), Owens Corning (OC), Dollar General (DG), Edison International (EIX), Comcast (CMCSA), AT&T (T), Verizon (VZ), Oracle (ORCL), and other dividend-paying firms.        

For additional exclusive market insights and content from TipRanks Macro & Markets research analyst Yulia Vaiman, click here.