Market Predictions: Buckle Up for a Bumpy Ride in 2025
As the year begins, analysts caution of potential market volatility driven by economic and geopolitical factors.
Trump's Inaugural Address to Set Market Tone
President Trump's second inaugural address on January 20th is expected to influence markets. Thierry Wizman, strategist at Macquarie, believes it could impact yields, foreign exchange rates, and commodity prices. Executive actions taken in the administration's early days may further shape market direction.
Fed Rate Hikes Raise Concerns
Jerome Powell, Chairman of the U.S. Federal Reserve, has expressed concerns about rising long-term interest rates. The recent strength of the jobs market limits the Fed's ability to cut rates further. Jurrien Timmer, Fidelity's director of global macro, warns that this could lead to recurring market volatility.
Volatility in the Later Stages of a Bull Market
Timmer notes that the later stages of a bull market tend to be more volatile. As valuations reach historically high levels, even minor disruptions can destabilize the market. He believes interest rate concerns will continue to weigh on stocks in 2025.
Sector Rotation and Market Breadth
In the second half of 2024, the market saw a broadening of stock choices beyond the "Magnificent Seven" tech titans. However, since December, investors have witnessed a narrowing of market breadth. Only a small percentage of stocks are outperforming their moving averages and the S&P 500 index.
Yield Curve Steepens
Timmer highlights the steepening yield curve, where the gap between long-term and short-term rates is widening. While stocks have historically been less sensitive to rates, he cautions that the correlation between stocks and bonds tends to strengthen during periods of high inflation. This dynamic could create headwinds for stock valuations in 2025.