Stock Market Today: What to Expect for 2025 as Bond Yields Rise

Stock Market Today: Nasdaq and S&P 500 Post Strong Gains in 2024

Stock Market Today – The stock market is entering the final two trading days of 2024, set to close another successful year with strong gains. The Nasdaq Composite (^IXIC) has once again led the charge in 2024, rising by more than 30% thus far. Meanwhile, the S&P 500 (^GSPC) has posted a rise of over 25%, and the Dow Jones Industrial Average (^DJI) has shown a more modest increase of 14%. As the year draws to a close, the market remains optimistic despite a holiday-shortened week with limited news on the agenda.

Quiet Trading Week Ahead for Investors

Investors will face a relatively quiet final week of trading in 2024, with markets closed on New Year’s Day (Wednesday), and no major companies scheduled to report quarterly earnings. Economic data is expected to be light, with updates on housing prices, sales, and manufacturing sector activity to take center stage in a subdued week of releases. This gives traders little to digest beyond already established trends heading into the new year.

Santa Claus Rally: A Glimpse of Tradition Amid Market Slump

The market is currently in the midst of the highly anticipated Santa Claus rally, a historically positive period between Christmas and New Year’s Day for stocks. Statistically, this seven-day stretch is one of the most consistent periods of gains for the S&P 500, often reflecting a boost to investor sentiment heading into the new year. However, this year’s rally has yet to live up to expectations.

Despite the optimism typically associated with this time of year, all three major indexes experienced a downturn on Friday, with the Nasdaq falling nearly 1.5%. This marks a sharp contrast to historical performance, which has seen the S&P 500 rise by an average of 1.3% during this seven-day period, significantly outperforming the usual 0.3% average. Historically, when the S&P 500 sees positive returns during the Santa Claus rally, it tends to signal a positive January, with the year averaging a 10.4% return. On the other hand, when the rally is weak or negative, January tends to end poorly, with average annual returns only around 5%.

As of now, after three days into the 2024 Santa Claus period, the S&P 500 is slightly down by less than 0.1%, leading some to question whether this year’s rally will materialize as expected.

Rising Interest Rates and Their Impact on Stock Performance

While the Santa Claus rally continues, market sentiment is also influenced by the recent shift in monetary policy. The Federal Reserve’s message that interest rates may stay higher for longer than expected has had a significant effect on bond yields. The 10-year Treasury yield (^TNX) has surged by more than 40 basis points just in December, now hovering just above 4.6%, the highest level in about seven months.

This rising bond yield has sparked concern among equity strategists, as many believe that higher rates will begin to put pressure on stock performance. Michael Kantrowitz, chief investment strategist at Piper Sandler, shared in a recent video sent to clients that a 10-year yield above 4.5% could prove problematic for broader market performance. In this context, investors are wary of potential impacts as bond yields increase.

Looking Ahead: The Road to 2025 and What’s Next for the Market

As 2024 draws to a close, the market’s trajectory remains uncertain. While the Nasdaq has shown impressive growth, and the S&P 500 has exceeded expectations, the rising bond yields and a quiet final week of trading leave investors with a mix of optimism and caution.

The Santa Claus rally may still provide a positive finish to the year, but with interest rates rising, it’s unclear how long the bullish momentum will last. The S&P 500’s strong year-to-date performance suggests that market sentiment remains generally positive, but concerns over higher bond yields could weigh on investor confidence as 2025 begins.

For now, investors will be closely watching the final days of 2024 for any signs of a market rebound or continued consolidation as they prepare for the upcoming year. Economic data, Federal Reserve policy, and investor sentiment will likely continue to shape market dynamics heading into 2025.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. Cryptocurrencies and stocks, particularly in micro-cap companies, are subject to significant volatility and risk. Please conduct thorough research before making any investment decisions.