Asset Management Weekly Market Commentary

Market updates for the week ending January 10, 2025

Key observations

• U.S. stock indices continued to chop around in a narrow trading range as rising Treasury yields has tamped down investor enthusiasm and risk appetite to start the new year. Information technology stocks have been most negatively impacted by the upward pressure on yields and registering outflows as investors have reallocated portfolios away from last year’s leaders in the communication services, consumer discretionary, and information technology sectors and into some of 2024’s laggards such as clean energy, oil and gas, and biotechnology stocks.
• Market breadth has continued to narrow or deteriorate in the new year, but many institutional investors appeared to rebalance in the back-half of December, removing one potential headwind for stocks we were expecting to materialize in January. Sentiment has turned more bearish in the last month and with the S&P 500 approaching oversold territory, a bounce is increasingly likely.
• Good news on the U.S. economy proved to be bad news for holders of higher quality, longer duration bonds over the balance of last week as fears of inflation reaccelerating led to a sharp move higher in rates/yields. Treasuries and investment-grade corporate bonds lagged lower quality, higher yielding corporate issues on the week, a continuation of what was a durable trend throughout much of last year.

What we're watching

• The National Federation of Independent Business (NFIB) releases its small business optimism survey for December which is expected to fall to 100.5 from 101.7 in November.
• U.S. Producer Price Index (PPI) for December is released Tuesday with PPI Final Demand expected to rise 0.3% month over month, which would be a modest drop from 0.4% in November.
• U.S. Consumer Price Index (CPI) for December is released Wednesday. Headline CPI is expected to rise 0.3% month over month, in-line with the November reading, and 2.9% year over year, which would be a notable jump from 2.7% the prior month. Core CPI, which excludes food and energy, is expected to rise 0.2% month over month and 3.3% year over year, readings that would fall in-line with the November release. After last week’s strong labor market data stoked inflation fears, investors may place greater emphasis on CPI, with a ‘hot’ reading putting additional upward pressure on Treasury yields and a ‘cool’ reading potentially leading to a ‘sigh of relief’ rally in longer duration Treasuries.