As far as US stocks are concerned, it’s safe to say last year was a disappointment.
Overall, the US majors had a good performance. The broad S&P 500 gained 23% in the year 2024. This followed a gain of 24% in the previous year.
It was the first two-year streak of 20%+ gains since the Nineties, when the index recorded 4 consecutive years with such high growth (and narrowly missed being 5).
Based on the stock market’s performance in 2025, it is possible that this year will be as good or better than any other.
The same as it was 25 years ago, the largest contribution of this growth has been made by tech/growth companies.
The NASDAQ 100 index, which excludes financial corporations and is focused on new technologies, industries and growth was impressive last year. It jumped 25% and slightly beat the S&P 500. There were also a number of technology behemoths including the ‘Magnificent Seven.
It was the year 2023 that was, at first glance, a really extraordinary one for the NASDAQ.
While the US Federal Reserve tightened monetary policy, this index rose 53% and more than doubled.
The NASDAQ 100 fell by a quarter in the year prior.
The US Federal Reserve began responding to the spike in inflation in 2022, which was not as temporary as the Fed had claimed.
To get ahead of this problem, Fed increased rates 425 basis point between March 2022 to the end and then continued by 100 basis point in the first six months of 2023.
It was less of an obstacle for old-school values stocks as compared to tech stocks.
Tech giants had a lot of cash and did not need to refinance or borrow at high rates.
This was not enough to dispel the growing concern that tech companies were being overvalued, or even richly valued.
We hear the same concerns if we go back in time.
There are many differences. For example, the Fed cut interest rates by 50 basis points, followed by 25 basis point cuts in November and in December.
The prospect of further easing in this year is now significantly lower.
This December’s decision has been dubbed a “hawkish rate reduction”. Recent strength in US data have seen yields on US Treasury notes of 10 years top 4,70%, returning to highs reached in April, sending the dollar surging.
The sharp rise in the yield on bonds has caught investors off guard.
The 10-year Treasury note could continue to rise towards 5.0%. This would be problematic for the future of equities, even though these borrowing costs may have been raised due to expectations about growth in the future, and not because there was fear over inflation or high Treasury bond issuance as a result of record deficits.
If, on the other hand, yields fall from their current level, as they did in April because Trump’s Team manages to reduce spending, US stock indexes may bounce back due to a positive wave of investor sentiment.
David Morrison, Senior Market Analyst for Trade Nation. His views are his. )
The post, A Tricky Start to 2025, may change as new information becomes available.
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