Stocks appear headed for a positive open to today’s trading, based on the futures market. Shortly after the commencement of trading, investors will see the Institute for Supply Management’s (ISM) latest reading, that is, for December, on the health of the domestic manufacturing sector. It is believed that the sector continued to contract. We note that the ISM’s purchasing managers index (PMI) indicated manufacturing expansion in only one month, last March, over the past year. Conversely, the ISM’s services PMI has reflected growth in 10 of the past 12 months, measuring contractions in only April and June of 2024. The services index measure for December is scheduled for release on Tuesday. We would not be surprised to see sustained services expansion this year, with some improvement in manufacturing.
Later this morning, Richmond Federal Reserve President Tom Barkin will speak on the economy and central bank policy. His comments will be followed by thoughts from San Francisco Fed President Mary Daly over the weekend. Also, early this evening, auto sales numbers for last month will be reported; a modest improvement is expected.
Trading this week, marked by thin volume, has led share prices lower. Prior to January 1st, many investors, and portfolio managers, sold some of their winners, including high-flying tech industry leaders, to lock in gains and favorable performance results. Too, with an eye to limiting their 2024 tax obligations, investors sold money-losing equities. Today’s likely gains probably stem from the investment of year-end bonuses. For the full week, though, it looks as if the blue-chip Dow Jones Industrial Average and the broader Standard & Poor’s 500 (S&P 500) will suffer declines of more than 1%, while the tech-heavy NASDAQ posts a loss of nearly 2%.
Notwithstanding the unusual absence of a “Santa Claus” rally at the end of 2024, the major market indexes advanced at double-digit rates for the second year in a row, an uncommon occurrence, as well. The NASDAQ rose 29%, the S&P 500 was up 24%, and the Dow stepped up 13%. Supporting stock valuations in 2024 were short-term interest rate cuts on the part of the Federal Reserve, slower momentum in inflation, strong profitable growth from the Magnificent 7 technology issues, healthy consumer spending, solid corporate earnings growth, low unemployment, broad economic gains, and the election of a president intent on reducing government regulation and lowering taxes.
It will be a tall order for the stock indexes to score another year of double-digit advances in 2025. That said, there is a fair degree of optimism on Wall Street, largely based on President-elect Trump’s pro-business viewpoint. The Republican Party has a thin majority in Congress and will need the cooperation of the Democrats to pass new legislation proposed by the president. Success is not assured, and this could result in marked share-price volatility, especially in the first half of the new year.
Many investors have entered 2025 with higher cash balances in their individual portfolios. We view this as advantageous. Market participants will be able to capitalize on any measurable share-price pullbacks. Notably, there are several appealing “second-tier” tech issues, with smaller market caps than the biggest seven sector leaders, trading at more-favorable price levels. Wall Streeters are hoping for a broadening of positive stock performance this year. A number of them are focused on large investment banks and biotechnology companies, in hopes of new merger & acquisition activity; electric utilities, benefiting from heavy artificial intelligence power usage; and infrastructure development firms, gaining from government stimulus legislation that is already in place. On balance, we look for modest overall stock index gains this year. – David M. Reimer
At the time of this article’s writing, the author held positions in none of the companies mentioned.
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