First trading day of the year, be careful

On By Littum

A look at the day ahead in US and global markets from Dhara Ranasinghe.

Don’t be fooled by what could turn out to be a positive start to the new year, with stock futures pointing to a strong opening on Wall Street on Thursday.

For the past four years, the first trading day of the year has been a contrarian indicator, according to Deutsche Bank analysis, which notes that the broad S&P 500 stock index ended each year in the opposite direction it moved on the first day.

Take last year, for example, the S&P closed about 0.6% lower on the first day of trading in 2024, but closed the year over 20% higher and posted a two-year jump of about 53% — its strongest annual performance. since 1998.

Instead of where stocks close on Thursday, more attention may be paid to the signals from the markets in the last, albeit quieter, last two trading weeks of 2024, where there was some decisive selling.

Investors liquidated global equity funds at the fastest rate in 15 years in the week to Dec. 18, according to LSEG Lipper data, in a move that can be explained in part by profit-taking on stellar gains and also by the Federal Reserve’s hawkish signal in December that it is meeting for fewer rate cuts and higher inflation.

On the one hand, US economic exceptionalism, bolstered by robust consumer spending and a robust labor market, deregulation and hopes of a China recovery bode well for global markets in 2025.

Chinese President Xi Jingping said in his New Year’s address on Tuesday that the country would implement more proactive policies to promote growth by 2025.

China’s factory activity grew in December, according to the private sector Caixin/S&P Global survey on Thursday, though at a slower pace than expected.

On the flip side is the more cautious narrative that sticky inflation could force the Fed to pause interest rate cuts, US President-elect Donald Trump’s plans for tariff increases could hurt global economic growth, just as political uncertainty in France and Germany is weakening individual confidence. currency bloc.

China stocks ended sharply lower in the first trading session of 2025, their weakest start to the new year since 2016.

Geopolitical risks are also on the list of concerns. Russian gas exports via Soviet-era pipelines running through Ukraine stopped on New Year’s Day, marking the end of decades of Moscow’s dominance of Europe’s energy markets.

However, the widely expected shutdown will not affect prices for EU consumers, unlike in 2022, when falling supplies from Russia sent prices to record highs, exacerbated a cost-of-living crisis and hit the bloc’s competitiveness.