4 Major Factors Driving Markets in January

Stock Market Summary – Stock Market Faces Pressures Amid Fed’s Policy Shift and Global Uncertainty

As we move deeper into January 2025, U.S. stock markets are encountering a range of pressures, marked by a notable shift in the Federal Reserve’s monetary policy, a strong but mixed December jobs report, and rising geopolitical tensions. These factors are collectively contributing to market volatility, with the S&P 500 on the brink of correction territory.

4 Major Factors Driving Markets in January – U.S. Markets Dip Amid Fed’s Rate Hike Concerns

The U.S. stock market experienced significant declines this past Friday, January 12, as the broader market took a hit despite a solid jobs report. By the morning of January 12, the S&P 500 had fallen 1.19%, the Nasdaq lost 1.38%, and the Dow Jones dropped 1.21%. These declines underscore investor concerns over the Federal Reserve’s monetary policy shift, as the central bank continues to raise interest rates in an effort to curb inflation. While December’s jobs report revealed robust hiring, the strong labor market could signal that inflationary pressures remain persistent, prompting the Fed to maintain its hawkish stance.

The S&P 500, which had seen a relatively muted increase of 0.8% since Election Day, now faces the risk of entering correction territory. A correction is typically defined as a decline of 10% or more from recent highs, and many analysts are predicting the possibility of this scenario in the coming weeks if market conditions do not stabilize.

Bond Yields Surge Amid Rising Inflation Fears

A significant factor contributing to the market’s pressure is the surge in bond yields, particularly the U.S. 10-year Treasury yield. This key benchmark increased to 4.74% by Friday, marking a substantial rise from the previous quarter and highlighting concerns about rising term premiums and ongoing inflation. The bond selloff has been partly driven by investor anticipation of continued rate hikes by the Federal Reserve, which are expected to keep borrowing costs higher for longer.

The increase in bond yields is seen as a reflection of growing inflationary concerns that could limit economic growth and corporate profitability in the near term. This shift has sparked a broader selloff in risk assets, including stocks, as higher rates typically discourage investment in equities.

Cryptocurrency Faces Setbacks as Bitcoin Slides Below $93K

Bitcoin, which has garnered considerable attention in recent years, also found itself under pressure this week. The cryptocurrency saw its value dip below the $93,000 mark, continuing a downward trend that has lasted several weeks. Despite this selloff, cryptocurrency trends remain in focus, especially as the inauguration of former President Donald Trump on January 20 looms. Trump’s return to the political spotlight has led to speculation about potential regulatory shifts in the crypto space, which could either bolster or undermine market sentiment.

Geopolitical Tensions and Trade Uncertainty

The global landscape has also been marked by rising geopolitical tensions. In addition to the ongoing wars in Ukraine and the Middle East, there has been increasing talk of tariff threats and trade disruptions. Recently, Canadian Prime Minister Justin Trudeau announced his resignation, an unexpected development that has added uncertainty to trade relations between the U.S. and Canada. This resignation could exacerbate existing trade tensions between the two North American neighbors and might also affect broader global trade dynamics.

As global tensions rise, many investors are becoming more cautious about international market exposures. The potential for further tariff escalations could have adverse impacts on global supply chains, which could, in turn, dampen economic growth and corporate earnings.

Stock Market Summary – Mixed Results and Increased Volatility

As of Sunday, January 12, 2025, U.S. stock markets have exhibited mixed results. The Dow Jones Industrial Average closed at 42,732, down 0.6% for the week but with a year-to-date increase of 0.4%. The S&P 500 closed at 5,942, down 0.5% for the week, but up 1.0% year-to-date. Similarly, the NASDAQ closed at 19,622, down 0.5% for the week, though it had gained 1.6% year-to-date.

On the international front, the MSCI EAFE index, which tracks developed-market stocks outside the U.S. and Canada, closed at 2,188.58, down 2.1% for the week. Meanwhile, the 10-year Treasury yield remained steady at 4.60%, while oil prices surged to $74.02, up 4.8% for the week, reflecting concerns over supply constraints.

In the bond market, prices edged up slightly to $96.81, but with little overall change from previous weeks. The bond market remains sensitive to the evolving economic landscape and Fed policy, signaling potential further volatility in the weeks ahead.

As the market grapples with higher rates, geopolitical uncertainty, and inflation fears, investors are bracing for a volatile 2025. The coming months will be crucial in determining whether the market can find stability or if the risk of a deeper correction becomes a more pressing reality.

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