Tough start to the new year

The S&P 500 experienced remarkable gains in 2024, with a 23.3% increase following a 24.2% rise in 2023, marking the best consecutive years since the late 1990s. However, recent market corrections and a failure of the Santa Claus Rally and Early January Barometer have introduced caution. Despite a 5% correction in the S&P, historical data suggests that even with negative early indicators, the market often finishes the year positively.

The quirky start to 2025, marked by unusual calendar events and a delayed nonfarm payroll report, contributed to market volatility. This volatility, combined with a post-election market pattern, indicates potential for positive annual returns, as seen in past post-election years. The upcoming earnings season will be crucial, with expected profit growth slowing to 11.7% year-over-year, but still maintaining a strong trajectory.

Fiscal policy changes under new leadership, promising reduced regulations and tax extensions, are anticipated to bolster economic growth. The S&P's full-year earnings are projected to grow by 10% in 2025, with a target index level of 7,000. The recent market correction may offer a strategic entry point for long-term investors, as the market adjusts to these fiscal and economic dynamics. Further insights will be provided in February to refine market direction and identify top-performing sectors.