So far in January 2025, the U.S. stock market has experienced a choppy start. The S&P 500 has seen a slight decline of about -0.90% year-to-date according to Y charts. This dip comes after a strong end to 2024, with investors adjusting expectations considering new economic data and policy developments.

Large-cap stocks have been under pressure, with the Dow Jones Industrial Average down by -1.42%, again according to Y charts. The retreat in large caps reflects caution about the sustainability of last year’s gains and concerns over potential policy shifts.

Small-cap stocks, tracked by the Russell 2000, have also been negative, with a performance mirroring the broader market, indicating a broad-based sell-off rather than sector-specific issues.

Valuations have come under scrutiny, with the S&P 500’s forward P/E ratio adjusting downwards from the start of the year, reflecting a more cautious market sentiment.

Market breadth has been poor, with most sectors participating in the downturn. The market has seen a lack of leadership, with the “S&P 493” underperforming, indicating a market where gains are not widespread. The “Magnificent Seven” have had varied performances, with some like Nvidia and Apple experiencing significant drops due to profit-taking and concerns about growth sustainability. However, there have been bright spots, with companies like Tesla showing resilience due to positive news on delivery numbers or product updates.

Dividend Growth Stocks been a relative haven, with sectors like utilities and consumer staples providing some stability amid broader market volatility.

The bond market has is so far down in January, with the Bloomberg Aggregate Bond Index falling 1% according to Y charts, due to stronger-than-expected economic data, particularly from the jobs report. Rising yields have put pressure on bond prices, though there’s been some stabilization as investors assess the Fed’s upcoming moves.

With the recent jobs data, expectations for early interest rate cuts have diminished, leading to a reassessment of bond investments. If inflation data continues to show stickiness, we might see further adjustments in yield expectations, which could continue to pressure the stock market.

Anticipation of deregulatory moves under the incoming Trump Administration might bolster certain sectors, but the market seems to be still waiting for concrete policy announcements. Concerns over new tariffs or trade policies could introduce volatility, especially if there are surprises in the policy direction. Finally, any indications on fiscal spending or tax policy could sway market sentiment, with investors particularly alert for details on infrastructure or tax reform proposals. Mostly, it’s a waiting game on policy as we enter corporate earnings reporting season.

Given the volatile start, the remainder of January might continue to be challenging, with markets possibly looking for a catalyst to stabilize or regain footing. Investors might focus on quality stocks with solid earnings outlooks and consider bonds for yield, especially if there’s a pullback in rates. The focus will be on upcoming economic indicators and policy announcements to gauge the market’s near-term direction.

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DISCLOSURES

The S&P 500 Index, or Standard & Poor’s 500 Index, is a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S. The S&P 500 index is regarded as one of the best gauges of prominent American equities’ performance, and by extension, that of the stock market overall.

The NASDAQ Composite is a stock market index of common stocks and similar securities listed on the NASDAQ stock market. The composition of the NASDAQ Composite is heavily weighted towards information technology companies.

The Russell 2000 tracks the roughly 2000 securities that are considered to be US small cap companies. The Russell 2000 serves as an important benchmark when investors want to track their small cap performances versus other sized companies. The Russell 2000 tends to have a larger standard deviation in comparison to the S&P 500.

The Bloomberg US Aggregate Bond Index is used as a benchmark for investment grade bonds within the United States. This index is important as a benchmark for someone wanting to track their fixed income asset allocation.

Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which Investment(s) may be appropriate for you, consult your financial advisor prior to investing. Information is based on sources believed to be reliable, however, their accuracy or completeness cannot be guaranteed.

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