The S&P 500 (^GSPC) just logged its best week since the November election as a cooler-than-expected inflation reading eased concerns that the Federal Reserve may rule out interest rate cuts for all of 2025.
For the week, the S&P 500 jumped more than 3%, while the tech-heavy Nasdaq Composite (^IXIC) rose more than 2.6%. The Dow Jones Industrial Average (^DJI) led the gains, soaring nearly 4%.
A light economic calendar is set to greet investors with updates on activity in the services and manufacturing sector as well as an update on consumer sentiment slated for release.
In corporate news, 43 S&P 500 companies are expected to report quarterly results highlighted by Netflix (NFLX), United Airlines (UAL), Johnson & Johnson (JNJ), and 3M Company (MMM).
SNP – Delayed Quote•USD
At close: January 17 at 5:11:45 PM EST
^GSPC^DJI ^IXIC
Trump is set to be sworn in for a second term as president on Monday. US stocks have looked sluggish at times over the past several weeks as rising rates and the debate over whether the Federal Reserve will cut interest rates in 2025 sent the S&P 500 to its lowest levels since the election.
But a better-than-expected inflation reading on Wednesday helped US markets perk up, and Bank of America investment strategist Michael Hartnett believes stocks in the S&P 500 will be “protected” from further downside by President-elect Donald Trump in the months ahead.
During his first term as president, Trump viewed the stock market as a barometer for his administration’s success. Many investors expect that Trump will remain sensitive to a pullback in US stocks during his upcoming turn.
Rallies across certain “Trump trades” like small caps, energy stocks, and financials have had fits and starts leading into the inauguration. This has been an early appetizer for what many believe will be a theme of the stock market in 2025.
“January volatility prior to Trump’s 1/20 Inauguration reinforces the core view of a more volatile year ahead,” Julian Emanuel, who leads the equity, derivatives, and quantitative strategy team at Evercore ISI, wrote in a note to clients on Thursday night.
Emanuel, who sees the S&P 500 finishing 2025 at 6,800, or about 13% higher than current levels, still argues Trump’s administration will bring a continued swing between “risk on” and “risk off” sentiment among investors.
A cutout of President-elect Donald Trump is seen as traders work on the floor of the New York Stock Exchange (NYSE) on Jan. 2, 2025, in New York City. (TIMOTHY A. CLARY/AFP via Getty Images) ·TIMOTHY A. CLARY via Getty Images
Last week we noted a hotter-than-expected December jobs report had some debating whether or not Fed rate hikes would come back into the discussion.
A cooler-than-expected inflation reading for December eased those fears. Bank of America Securities senior US economist Aditya Bhave wrote in a note to clients on Jan. 10 that the Fed conversation was “moving toward hikes.”
After the December inflation data was released on Jan. 15, Bhave told Yahoo Finance the report “trims the tail risks of a hike.” His team still believes the Fed will remain on hold for the foreseeable future, though.
Markets will likely have a breather from the Fed discussion in the week ahead as no major economic data releases are expected and the central bank enters its “blackout period,” during which no officials speak publicly ahead of its next policy decision on Jan. 29.
As of Friday afternoon, markets were pricing in a range of one to two Fed rate cuts this year, per Bloomberg data.
Fourth quarter earnings season kicked off in earnest last week with reports from the nation’s largest banks. Largely, company results were better than expected. FactSet data shows the S&P 500 is now pacing for 12.5% year-over-year earnings growth this quarter compared to the 11.5% expected last week.
“While early, it’s a great start to a reporting period where we expect a larger than average aggregate beat and remain positive on the earnings outlook,” Citi US equity strategist Scott Chronert wrote in a note to clients on Friday.
Earnings season will roll on this week with 43 S&P 500 companies reporting, headlined by large-cap tech giant Netflix. But whether or not earnings will truly be the focus in the coming weeks will be tested as political headlines are expected to pile in as Trump is sworn into office on Monday.
“We expect policy noise to pick up next week with the inauguration Monday and a number of executive orders reportedly planned,” Chronert added. “Short term, markets will have to contend with building fiscal, trade, and monetary policy uncertainty, even if [earnings] reports are solid.”
Whether or not the conversation around Trump’s policies sends bond yields higher once again will be a key narrative to watch in the coming week.
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Monday
Markets closed for Martin Luther King Jr. Day while President Trump will be sworn into office.
Tuesday:
Economic data: No notable economic data releases.
Earnings: Netflix (NFLX), 3M Company (MMM), Capital One (COF), Charles Schwab (SCHW), D.R. Horton (DHI), KeyCorp (KEY), Interactive Brokers Group (IBKR), United Airlines (UAL), Zions Bancorporation (ZION)
Wednesday
Economic data: MBA Mortgage Applications, week ending Jan. 17 (+33.3% previously); Leading Index, December (-0.1% expected, +0.3% prior)
Economic data: Initial jobless claims, week ending Jan. 18 (217,000 previously); Kansas City Fed. Manufacturing Activity, January (-4 prior);
Earnings: American Airlines (AAL), Alaska Airlines (ALK), CSX Corporation (CSX), Freeport-McMoRan (FCX), GE Aerospace (GE), Intuitive Surgical (ISRG), Texas Instruments (TXN), Union Pacific Corporation (UNP)
Economic data: S&P Global US manufacturing PMI, January preliminary (49.4 prior); S&P Global Services PMI, January preliminary (56.8 prior); S&P Global US composite PMI, January (55.4 prior); Univesity of Michigan consumer sentiment, January final (73.2 prior); Existing home sales, December (1.2% expected, 4.8% prior)
Earnings: American Express (AXP), First Citizens BancShares (FCNCA), NextEra Energy (NEE), Verizon (VZ)
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
