In case you have not been counting, 2024 has five-and-half trading days left. And 2024 has been a very good year so far. Not record-breaking, but a 24.3% gain for the Standard & Poor's 500 Index, as of Dec. 20, is not something to thumb your nose at.
If it's a record you seek, go back to 1995, when the index jumped 34.1% and started a 5-year streak when the index grew by 20% a year. (Okay, 1999 was only a 19.5% gain.)
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Besides, this past week reminded investors and everyone that markets can be fickle.
There was unease before the Federal Reserve meeting on Wednesday. Inflation was becoming increasingly stuck at a half-percentage point or so above the Fed's 2% goal.
Fed Chairman Jerome Powell warned Wednesday that interest rates might not come down as quickly next year as many had expected.
Related: Veteran analyst explains if stocks will see a Santa Claus Rally this year
The S&P 500 and the Dow Jones Industrial Average both fell nearly 3% on Powell's statement. The Nasdaq Composite Index dropped 3.6%.
It was such a big surprise that Fed officials spent Friday reassuring everyone rates would still fall in 2025.
Futures trading suggests a decent Monday open for stocks, but volume will be light as many investors and traders won't be working because of the holiday week.
That said, Friday's rally came after signals from several indexes, including the Dow, that the market was oversold at the end of Thursday's trading. That sometimes sets up a bounce for the next day. It did in a big way, and it appears the momentum has strength for Monday.
When markets are open during Christmas and New Year's
Christmas is Wednesday, and, a calendar rarity, Hanukkah starts the same day. Markets will be closed for the day.
Monday will be a full day of trading. On Tuesday, trading halts at 1 p.m. Full trading days are set for Thursday and Friday.
New Year's Day is also a holiday, but there will be full days of trading the other days in the week starting Dec. 30.
What's ahead for stocks in 2025
If you believe Wall Street research departments and market gurus, 2025 should be a decent year.
There seems to be a consensus that the S&P 500 index will rise to 6,600, an 11.3% gain (before dividends). A few hearty projections suggest the index will end at 7,000 or higher, a 14% gain.
Related: Analysts unveil surprising small cap stocks forecast for 2025
That is, of course, talking about large-capitalization stocks and the like. And the indexes, especially the S&P 500, Nasdaq and Nasdaq-100 Indexes and ETFs like the SPDR S&P 500 ETF Trust SPY and the Invesco QQQ Trust (QQQ) , are heavily dominated by technology and related stocks.
But the good feeling would also spread to midcap and small-cap stocks, the conventional wisdom says.
There are three big catalysts:
- Most professional investors believe Artificial Intelligence spending will continue at current massive levels and the monetization (profits) will come. Good for Nvidia (NVDA) , Taiwan Semiconductor (TSM) , Microsoft (MSFT) , Amazon (AMZN) , Broadcom (AVGO) , Google-parent Alphabet (GOOGL) and Facebook-parent Meta Platforms (META) .
- Deregulation will spur more mergers and acquisitions and, if the bond market cooperates with decent interest rates, will produce a new wave of initial public offerings.
- Lastly, as Seattle investor Jon Markman put it on Friday, the expectation has been that the incoming Trump Administration will "provide investors with the fuel to maintain a solid stock market advance. Investment strategists see incredible power in deregulation and tax cuts."
All of that assumes the raucous, tension-filled budget battle that just ended doesn't resume.
Markets didn't find the budget fight reassuring. You could see it the unease in rising bond yields, which meant mortgage rates jumped.
Market sectors show returns are not uniform
As of Friday, just three sectors of the S&P 500 are up in December: consumer discretionary, technology, and communication services. They are among the four dominant sectors in 2024 and are expected to dominate in 2025. The fourth is financial stocks.
Technology is straightforward.
Related: Major stock themes to target in 2025
Consumer discretionary stocks include Tesla, Yum! Brands (YUM) , Home Depot (HD) , home builders Lennar (LEN) and D.R. Horton (DHI) and Caesars Entertainment (CZR) .
The sector's stock performance can vary widely. Royal Caribbean is up 84% this year. Tesla (TSLA) is up 69%. Nike (NKE) and Lululemon Athletica (LULU) are down 29% and 26%, respectively.
Communications Services include Alphabet, Netflix (NFLX) , Walt Disney (DIS) , and Meta.
Tops in the sector are Netflix, up 87%, followed by Fox Corp. Class B (FOX) and Fox Corp. Class A (FOXA) , up 69% and 67%, respectively.
Some consumer staples, like Walmart (WMT) and Costco Wholesale (COST) , already are winners this year, up 75.5% and 44.5%, respectively. But the sector overall is up only 13.6%. They should do well, and those with solid managements and growing dividends, will attract investors.
Energy will be a wildcard in 2025
Energy is one of the worst-performing sectors in the S&P 500. Consumers are happy about it. Investors aren't.
The fortunes of these companies, including Chevron (CVX) and Exxon Mobil (XOM) , is tied directly to the price of oil and, thus, they're vulnerable to geopolitical forces
The Organization of Petroleum Exporting Countries, however, is struggling to get its members to abide by their quotas. And they face an enormous competitor: the United States, which has led world oil production for the last six years.
Crude oil is down 3.4% this year at $69.22 a barrel. Just 30 months ago, crude hit $122 a barrel in the United States. Gasoline prices soared, with AAA's U.S. national average price hitting $5.016 a gallon in June 2022.
Sunday's price was $3.042 a gallon, down 2.3% on the year and down a whopping 40% from the 2022 peak.
More than half the country is paying less than $3 a gallon for gasoline now.
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The bond market would like a word, however
Starting in late November, the big post-Trump election rally started to stall. The Russell 2000, S&P Midcap 400 and S&P Midcap 600 indexes peaked at all-time highs on Nov. 25. The Dow peaked on Dec. 4. The S&P 500 followed two days later. The Nasdaq finally topped out on Dec. 16.
One cause was rising longer-term interest rates, surging because of investor worries about the U.S. financial well-being.
The 10-year Treasury was at 3.66% before the Federal Reserve's first rate cut on Sept. 18. The yield was as high as 4.6% on Thursday before falling to 4.52%, up from 25% from that September low.
Mortgage rates, which track the 10-year yield, surged above 7% after the Fed said it might make only two rate cuts in 2025 when investors had been looking for four. Rates above 7% are weighing on home sales and new home construction.
On Friday, two important Fed officials, Austan Goolsbee and John Williams, suggested the Fed still had room to cut. Goolsbee is president of the Federal Reserve Bank of Chicago. Williams is president of the New York Federal Reserve Bank.
Their comments set off Friday's stock market rally and eased bond-market pressures. Whether the relief carries over into next week isn't clear. Normally, you expect a Santa Claus rally over this year's last five trading days and the first two days of January.
Bond and stock market risks in 2025
These will affect bond and stock markets:
- Burgeoning borrowing needs are pushing higher the cost of what the U.S. government pays for credit higher, and that affects the entire economy. That's a big reason why interest rates have remained higher than expected since bottoming in September.
- Tariff threats. President-elect Trump wants to impose new tariffs on goods from Europe, Canada, Mexico, and China, still insisting they won't boost inflation in the United States.
- Mass deportations. No one knows the scope of Trump's vow.
- The effects of possible mass federal layoffs.
- Geopolitics. The Ukraine-Russia War is still being waged. So are all the conflicts in the Middle East. A hot spot to watch: China and Asia. Over the weekend, Trump demanded Panama return the Panama Canal.
Something you will hear about in 2025
Lastly, a little gift to think about: An investable idea that is starting to make a name for itself. It may change computing as we know it in maybe the not-to-distant future.
It's called quantum computing, building around the idea of using quantum mechanics, an esoteric branch of physics, to create incredibly fast and powerful computers.
The field of quantum computing includes several disciplines, including quantum hardware and algorithms, to solve problems that a classical computer cannot solve or cannot solve fast enough.
Quantum computers don't use bits of electricity to work. Rather, they work with subatomic particles.
Google has announced a chip that can solve an experiment quickly, which the company said would otherwise take 300 million years.
Several companies have gone public to raise cash to develop these computers. None are remotely profitable, but they working on making the technology doable.
The trio are Rigetti Computing (RGTI) , IonQ IONQ and D-Wave Quantum systems (QBTS) .
Rigetti makes integrated circuits for quantum computers. IonQ is developing a quantum computer. D-Wave is selling computers that exploit quantum effects in their operation.
All of the big technology companies are playing with the idea. Companies that have used some of the technology include Master Card (MA) , NEC Corp. (NIPNF,) and Unisys (UIS) .
For more check, my colleague Rob Lenihan's story: Analysts revamp IonQ, Rigetti, and D-Wave Quantum stock price targets on quantum computing outlook
Related: Veteran fund manager delivers alarming S&P 500 forecast
