Stocks Open 2025 on Loss Streak, Awaiting Jobs Data
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Welcome to the Schwab Market Update podcast, where we prepare you for each trading day with a recap of recent news and a look at what's ahead. I'm Keith Lansford, and here's Schwab's early look at the markets for Thursday, January 2nd of 2025. Stocks limp into the new year down four sessions in a row after recent rally attempts ran into selling pressure and losses broadened.

Another tick higher in Treasury yields Tuesday didn't help matters and could have investors nervous as this holiday-interrupted week resumes. Wall Street's struggles began about two weeks ago when the Federal Reserve expressed caution about future rate cuts amid sticky inflation and a fast-growing U.S. economy.

At the same time, worries about tariffs and other policies championed by the incoming Trump administration unsettled markets and helped send Treasury yields up nearly 100 basis points from the September low. Volatility also rose, and the futures complex indicates it could continue climbing ahead of earnings season and as power shifts in Washington, D.C. December started strong but turned into something of a lost month.

The S&P 500 index posted 57 record highs in 2024, but none after December 6th. It ended Tuesday down 3.5% from the December 6th peak settlement, but up more than 23% for 2024, its second consecutive year of 20% gains.

This is the second December in six years to see the S&P 500 index fall, the last time being in 2022 and before that in 2018. Technically, the month ended on a weak note, with the S&P 500 falling almost to its lowest closing levels of December and little buying interest showing up in the final minutes of the year, none of which bodes well for today's market from a technical perspective.

On the data front, investors await weekly initial jobless claims this morning. The briefing.com consensus is 224,000, but the market has its eyes peeled on continuing jobless claims, which came in above 1.9 million last time out, a three-year peak. Higher continuing claims suggest it's harder for laid-off workers to find new jobs, often the case in a slowing economy. The Federal Reserve is likely watching this metric closely.

Tesla's quarterly deliveries are expected before the end of the week. Several Wall Street analysts pegged the number at 510,000, the highest in history. Tesla drove to rapid gains earlier this month before lagging the last few sessions and helping push the overall market lower with the force of its high market capitalization.

Tesla has run into profit-taking pressure the last few sessions, partly from worries that January could see more pressure on mega caps. The thinking is that investors might be waiting to take profit on their 2024 winners until the new year, hoping for better tax treatment.

Before the end of the year, there was some economic news from China. President Xi has said he expects the economy to reach the 5% gross domestic product or GDP growth target for 2024, Bloomberg reported, and China aims to put its own semiconductor chips in EVs, according to the Wall Street Journal. Earlier this week, China's December manufacturing PMI came in at 50.1, down from 50.3 in November, but still above the 50 level that signifies expansion.

Non-manufacturing PMI rose to 52.2 from 50.0 in November. China is expected to set a GDP growth target for 2025 that's near the 2024 level, Bloomberg said. But potential increases in U.S. tariffs are a negative overhang. The GDP target is due in March, and economists surveyed by Bloomberg expect 4.5%.

On the sector front, Tuesday, the semiconductor weakness in stocks like NVIDIA and advanced microdevices pushed Infotech to the bottom of the scorecard, while rising crude oil prices helped energy top the sector list with a better than 1% gain.

Despite overall market weakness, several sectors finished green on the year's final trading day, with the S&P Equal Weight Index, which weighs all stocks in the S&P 500 equally rather than by market capitalization, managing to stay near the flatline. Small caps rose. Despite that, the S&P Equal Weight Index fell more than 7% this month as S&P 500 breadth dissipated, hurting sectors like financials, materials, and industrials.

Cyclicals, or stocks that tend to rise in a strong economy, have struggled this month as the 10-year Treasury note yield climbed almost 40 basis points in December. Checking the rate outlook, the CME FedWatch tool now puts odds of a January Fed pause close to 89% and dials in high odds of just two rate cuts in 2025, down from four not long ago. The tool pegs chances for at least one rate cut in the first quarter at around 50-50.

The S&P 500 slipped 25.31 points or 0.43% Tuesday to 5,881.63. The Dow Jones Industrial Average fell 29.51 points or 0.07% to 42,544.22. And the Nasdaq Composite lost 175.99 points or 0.9% to 19,310.79. This has been the Schwab Market Update Podcast.

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