Stocks Waver into 2025 Amid Inflation Concerns and Fed Caution

Stocks stumbled as 2024 ended and 2025 began, following a strong year in which the S&P 500 rose 23%, marking its best two-year performance since 1997-1998. However, prospects for continued gains depend heavily on economic strength, with labor market data offering key insights into inflation and Federal Reserve policy.

The Federal Reserve shifted to a more cautious outlook on rate cuts, raising inflation expectations for 2025. This spurred investor concerns about higher-for-longer interest rates. Recent economic data showed unexpected resilience, with U.S. job openings rising in November to 8.79 million, exceeding expectations, and services sector activity accelerating in December, driven by strong consumer spending and business activity. These reports fueled inflation worries and led to higher Treasury yields, which hit 4.699%, the highest since April 2023, reflecting concerns about persistent inflationary pressures.

Markets reacted to the data with increased volatility. Tech, consumer discretionary, and communication services stocks led declines, while energy and healthcare saw gains. Nvidia (NASDAQ:NVDA) dropped 6.22% as rising yields pressured growth stocks, which are more sensitive to interest rates, and Tesla (NASDAQ:TSLA) fell 4% following a downgrade by major analysts citing valuation concerns and slowing demand. Positive earnings outlooks supported gains for banks like Citigroup (NYSE:C) and Bank of America (NYSE:BAC), which benefited from higher interest income expectations due to elevated rates.

Investor sentiment was further unsettled by political uncertainty as President-elect Donald Trump denied reports suggesting his administration might ease tariffs on key trading partners. Instead, Trump reaffirmed his commitment to protectionist policies, including potential tariff increases on Chinese imports and renegotiations of trade agreements. This stance sparked fears of inflationary pressures from higher import costs and potential trade disruptions, adding another layer of uncertainty for global markets.

Bond markets saw a flurry of activity as companies rushed to issue debt early in 2025, aiming to secure favorable credit spreads before potential rate hikes. Investment-grade debt issuance hit $1.52 trillion in 2024, up 26% from 2023, reflecting strong corporate borrowing as firms sought to lock in financing ahead of tighter monetary conditions. Analysts noted that corporate balance sheets remained robust, enabling this surge in debt issuance despite market volatility.

Market strategists predict elevated volatility throughout 2025, citing macroeconomic uncertainty, geopolitical risks, and shifting monetary policy. UBS analysts warn that inflation, tariff concerns, and labor market strength could keep interest rates elevated, sustaining market fluctuations and challenging equity valuations. Analysts also highlight the potential impact of geopolitical developments, such as tensions in the Middle East and Europe, which could disrupt supply chains and energy markets.

While growth stocks face headwinds, broader market sentiment hinges on upcoming economic data, including nonfarm payrolls and inflation reports. Investors remain focused on balancing short-term risks with longer-term economic prospects as 2025 unfolds, closely monitoring Federal Reserve actions and fiscal policy developments for further direction.

Data for Technical Analysis (30Min) CFD US30 DJIA

Resistance : 43005.9, 43126.8, 43322.6

Support : 42614.3, 42493.4, 42297.6                    

30Min Outlook

Source: TradingView                      

Buy/Long 1 If the support at the price range 42214.3 - 42614.3 is touched, but the support at 42614.3 cannot be broken, the TP may be set around 43113.7 and the SL around 42114.3, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 43005.9 - 43405.9, TP may be set around 44000.0 and SL around 42514.3, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 43005.9 - 43405.9 is touched, but the resistance at 43005.9 cannot be broken, the TP may be set around 42601.2 and the SL around 43505.9, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 42214.3 - 42614.3, TP may be set around 41712.0 and SL around 43105.9, or up to the risk appetite.       

Pivot Points Jan 8, 2025 02:51AM GMT