Investors are feeling confident to start 2025. They might want to take a deep breath first. Stock futures indicated a strong open Thursday, with those tied to the Dow Jones Industrial Average up 280 points, or 0.7%. S & P 500 and Nasdaq-100 futures were also up 0.7% and 0.9%, respectively. If the S & P 500 manages to gain 1% or more on the day, it will mark its best first trading day of the year since 2013, according to Bespoke Investment Group. This all comes after a strong 2024, which marked the second straight year the S & P 500 posted an annual gain of more than 20%. The broad market index hasn’t seen back-to-back yearly gains of that size since the late 1990s. But this month is packed with potential land mines that can disrupt the stock market’s momentum. One of them is the December jobs report due out Jan. 10. Economists forecast the U.S. economy added 160,000 jobs in December after seeing a gain of 227,000 in November . If the report comes in hotter than expected, it may force the Federal Reserve to cut rates even less than investors already expect. “Markets are complacent to a growth scare and if we get one, stocks will drop like they did in August,” wrote Tom Essaye of The Sevens Report. “On the other hand, with the Fed showing less desire to cut rates, if the jobs report is really strong it’ll reduce rate cut expectations and boost yields.” Another potential land mine is the upcoming earnings season, which starts later in January. “The only way valuations for this market aren’t prohibitive is if we get substantial earnings growth,” Essaye wrote. Indeed, the S & P 500 is trading near 27 times trailing earnings — near levels not seen since 2021. On a forward earnings basis, the benchmark trades at a more reasonable level of 22, though that’s still close to the highest in more than three years. Investors will also have to watch out for the Fed meeting slated for the final week of January. Data from the CME Group’s FedWatch tool shows traders see an 88% probability of the Fed keeping benchmark rates at their current range of 4.25%-4.50%. However, if the central bank signals it’s less inclined to lower them later in the year, it could spark a sell-off in stocks. “Bottom line, the fundamentals for this market are good as we start 2025, but there are also great expectations and meeting those expectations starts right away, and these are the key events that will likely determine if those positive expectations are met,” Essaye wrote. One curious stat Deutsche Bank strategist Henry Allen pointed out a curious stat in his note Thursday: “For the last 4 years, the first trading day has been a contrarian indicator, with the S & P 500 ending the year in the opposite direction it moved on the first day.” He added: “As we look forward to the year ahead, it’s also worth remembering that none of the last 5 years have exactly gone to plan or consensus in the macro sphere. 2020 was the best example of that, with the pandemic making the 2020 outlooks redundant by the end of Q1. And since then, the surprises have kept on coming.”
Wall Street will have to steer through host of land mines in January