Investors Sizing Up Possible Direction for S&P 500 in 2025

2025 has begun the way 2024 ended. With investors doing their best to determine what direction stock prices will go during the next year.

As the year gets underway, expectations of how the U.S. Federal Reserve will be setting stock prices continues to be the dominant factor affecting how far forward in time investors are focusing their attention. At this writing, the CME Group’s FedWatch Tool continues to anticipate just one rate cut in all of 2025 in its full-year forecast. The only projected rate cut currently on the radar is a 0.25% reduction in the Federal Funds Rate on 7 May (2025-Q2).

That expectation puts the second quarter of 2025 directly in the long range scopes of investors. The final update to the alternative futures chart for 2024-Q4 confirms the level of stock prices is tracking within the lower end of the expected range associated with investors focusing their forward-looking attention on this distant future quarter.

As the first trading days of 2025 have passed, the S&P 500 (Index: SPX) closed out the two past holiday-shortened trading weeks at 5,942.47, up just 11.60 points or 0.2% from the index’ level two weeks earlier.

Which is to say the random onset of new information during the past two weeks has done little to affect investor expectations for the future of stock prices. Here are market moving headlines we noted during these two weeks.

Monday, 23 December 2024

• Signs and portents for the U.S. economy:

• US new home sales rebound in November after hurricane drag
• Shrinking US bar tabs signal little festive cheer for liquor makers
• Oil prices ease on surplus concerns, dollar strength

• Plan to throttle foreign fossil fuel finance collapses at OECD, Bloomberg reports

Signs of growth, such as it is, developing in China:

• Chinese media hail consumption boost even as caution spurs rentals, not buying

Bigger trouble developing in Eurozone, ECB minions thinking they could change gears and cut interest rates further:

• Europe’s embattled auto sector plans plant closures and layoffs
• Europe’s energy taxes are worsening industry woes, power CEO says
• Lagarde says ECB very close to reaching its inflation goal, FT reports

Dow, S&P, and Nasdaq trade mixed on the holiday-shortened trading week

• S&P 500, Nasdaq gain in choppy trading as most megacaps move higher
• Apple approaches $4 trillion valuation as investors bet on AI momentum

Tuesday, 24 December 2024

• Signs and portents for the U.S. economy:

• Oil prices rise 1% in thin pre-holiday trade

Bigger stimulus developing in China:

• China to ramp up fiscal support for consumption next year

BOJ minions say next year is the one they’ll finally hit their inflation target for Japan:

• BOJ’s Ueda expects further progress in hitting price target next year

Wall Street ends higher as Santa rally begins

Thursday, 26 December 2024

• Signs and portents for the U.S. economy:

• Oil prices ease as markets weigh China stimulus hopes
• New US jobless claims slip, but people are remaining unemployed for longer

Bigger stimulus, bailouts developing in China:

• Exclusive: China plans record $411 billion special treasury bond issuance next year
• China Stimulus Pledges All Pledge to Recapitalize State Banks

Wall Street ends topsy-turvy session mixed, putting Santa rally under pressure

• Dow ends up to extend win run to five; rising yields pressure megacap stocks
• With the new year upon us, a look back at Wall Street’s Santa rallies since 2000

Friday, 27 December 2024

• Signs and portents for the U.S. economy:

• U.S. Inflation Has Turned ‘Sticky’, Reducing Odds For Rate Cuts
• Intel leads 2024 tech layoffs, but sector lays off 43% less year over year
• US homelessness rose by record 18% in latest annual data

BOJ minions quantify how much they think their future rate hikes will hurt Japan’s businesses:

• BOJ produces estimates on how future rate hikes affect earnings
• Inflation in Japan’s capital accelerates, keeps rate hike prospects intact
• Yen gains as some BOJ policymakers see rate hike soon

Wall St finishes down after sell-off at end of strong holiday-shortened week

• Wall Street bounces back in Christmas week, with S&P on track for banner year

Monday, 30 December 2024

• Signs and portents for the U.S. economy:

• Oil rises on diesel demand boost in sparse holiday trade
• US credit card defaults jump to highest level since 2010

Mixed economic signs developing in China:

• Chinese youth flock to civil service, but slow economy puts ‘iron rice bowl’ jobs at risk
• China’s Dec manufacturing activity seen expanding for third month: Reuters poll

Less bad trouble developing in Japan:

• Japan’s factory activity shrinks at slower pace, PMI shows

Bigger trouble developing in South Korea:

• South Korea November factory output falls more sharply than expected

Nasdaq, S&P, and Dow sink alongside Treasury yields as 2025 approaches

• Wall St slides to 1-week low on thin trading, elevated yields
• Wall Street to close on Jan 9 to honor President Jimmy Carter

Tuesday, 31 December 2024

• Signs and portents for the U.S. economy:

• Oil prices up 2% on China optimism as investors return from holiday

• US oil executives expect faster permitting under Trump, says Dallas Fed
• US oil production rose to record high in October, EIA data shows
• Oil prices post 3% annual decline, slipping for second year in a row

Bigger trouble, stimulus developing in China:

• China’s Economy Is Burdened by Years of Excess. Here’s How Bad It Really Is
• China’s Xi expects 2024 GDP growth of around 5%, state media says
• China’s Xi pledges more proactive economic policies in 2025

Wall Street ends lower, capping a banner year

• Stocks end strong year with a whimper as yields apply pressure
• Without the largest 6 stocks, indices would have returned much less – here is how much

Thursday, 2 January 2025

• Signs and portents for the U.S. economy:

• Oil prices settle up on China optimism as investors return from holiday
• US weekly jobless claims hit eight-month low as labor market remains resilient
• US 30-year fixed-rate mortgage flirts with 7%

• The Fed Is Cutting – Why Are Mortgage Rates Going Up?

Bigger trouble, stimulus developing in China:

• Growth in China’s factory activity slows, Caixin PMI shows

Wall Street reverses course, erases nearly 1% gain in volatile first trading day of 2025

• US equity inflows cool on higher bond yields

Friday, 3 January 2025

• Signs and portents for the U.S. economy:

• US manufacturing PMI rises to nine-month high in December
• US new car sales rose to five-year high in 2024, helped by hybrids

Fed minions say the year ahead looks great, although they’ll keep interest rates higher for longer because of persistent Bidenflation:

• Fed’s Barkin: Year-ahead outlook positive, with upside risk
• Fed policy may need to stay restrictive for longer due to inflation risk, Barkin says

Bigger trouble, stimulus developing in China:

• Trouble in China’s shopping paradise as Hainan duty-free spending tumbles
• China will sharply increase funding from treasury bonds to spur growth in 2025

• China’s central bank says it will cut banks reserves, rates at proper time

China gives government workers first big pay bump in a decade to boost economy

Wall Street shakes off recent weakness, snaps longest losing streak since April

• Wall St rises on tech boost, policy changes in focus

The Atlanta Fed’s GDPNow tool‘s projection of the real GDP growth rate for the current quarter of 2024-Q4 declined to +2.4% from the pre-Christmas holiday week’s +3.1% annualized growth estimate.

In our next edition, we’ll roll the alternative futures chart forward to provide a first look at the potential levels of the S&P 500 through 2025-Q1. On another programming note, this is the first of two editions of the S&P 500 chaos series that we anticipate will span a two week long period in 2025. The second will come during the middle of the summer doldrums and will cover the last week of July and first week of August 2025.

Image credit: Microsoft Copilot Designer. Prompt: “An editorial cartoon of a Wall Street bull and bear discussing what direction to go in 2025″.