S&P 500 Set for Best Week Since November Election: Markets Wrap

This content was published on January 17, 2025 - 21:01

8 minutes

(Bloomberg) — A rally in the world’s largest technology companies drove stocks toward their best week since the November presidential election just ahead of Donald Trump’s inauguration.

Most major groups in the S&P 500 rose Friday, with the gauge up over 1%. Tesla Inc. and Nvidia Corp. led a surge in megacaps, while Intel Corp. jumped 8.2% after a report the chipmaker is an acquisition target. Also aiding sentiment were headlines that President-elect Trump and Chinese President Xi Jinping discussed trade, TikTok and fentanyl, which could set the tone for relations between the world’s two largest economies. Bonds also saw a weekly rally, with 10-year yields down 15 basis points in the span.

Trump, who is set to be sworn in as the 47th US president on Monday, has reiterated his focus on core priorities such as cutting taxes and raising tariffs. Equities rallied following the election on bets the new administration will enact pro-growth policies that will boost Corporate America. While stocks faltered last month on hawkish Fed signals, recent data showing cooling inflation reignited bets on rate cuts.

“This week’s easing inflation data and a positive reaction to earnings from several financial companies resulted in a bond and stock rally,” said Craig Johnson at Piper Sandler. “Recent short-term oversold conditions and weak bullish sentiment are underpinning the recovery of the major indices from within their primary uptrends.”

To Mark Hackett at Nationwide, the bounce in equities is encouraging, indicating the balance between bulls and bears is leveling.

“Markets are likely to remain in a zigzag pattern through earnings season,” he noted. “Once earnings season is finished, expectations are reset, and the buyback window reopens, the bulls can reestablish control.”

The S&P 500 rose 1.1%. The Nasdaq 100 climbed 1.7%. The Dow Jones Industrial Average added 0.8%. A Bloomberg gauge of the “Magnificent Seven” megacaps rallied 2.2%. The Russell 2000 advanced 0.2%. US markets will be closed Monday for a holiday.

The yield on 10-year Treasuries was little changed at 4.61%. The Bloomberg Dollar Spot Index rose 0.2%. Bitcoin jumped to around $105,000.

“What a difference a week makes,” said Steve Sosnick at Interactive Brokers. “At this time last Friday stocks were selling off sharply thanks to a better-than-expected jobs report. It revealed the equity market’s somewhat seemingly obvious preference for rate cuts over a solid economy.”

From a technical perspective, Dan Wantrobski at Janney Montgomery Scott, says the setup was “nearly perfect for oversold conditions to collide with positive news and trigger the rally we are currently experiencing.”

When Trump takes his oath as the next US president on Monday, stock investors will have one big reason to breathe a sigh of relief. History shows the performance of the equities benchmark over a three-month period usually improves after inauguration day.

History shows that the average three-month performance of the S&P 500 going into the ceremony is just about 1%, compared to a 3.7% rise on the way out, according to Jefferies’ analysis of data going back to 1929.

The index “typically trades lumpy around inaugurations,” the firm’s strategists said, but things start to improve a few months in. In fact, on average the S&P gains 8.3% six months into an inauguration and about 9.5% 12 months in, according to Jefferies.

Trump’s return to the White House will likely shield US stocks from a big selloff, according to Bank of America Corp. strategists, as investors focus on his protectionist agenda and proposals for lower corporate taxes.

US stocks are “protected by Trump” from downside, strategist Michael Hartnett wrote in a note, although he doesn’t expect sharp gains either due to risks including high concentration in mega-cap technology stocks, valuations and investor positioning.

“We continue to view US equities as attractive, forecasting that 9% earnings growth this year will drive the S&P 500 to 6,600 by the end of the year,” said Mark Haefele at UBS Global Wealth Management. “Large-caps should outperform mid- and small-caps given their greater AI exposure, better earnings trends, and less dependency on Fed rate cuts.

Sector-wise, he likes information technology, financials, utilities, communication services, and consumer discretionary.

“When you’ve had so many years should significant outperformance of US equities, it’s very difficult to then look at opportunities outside the US and think that they’re gonna be any more attractive,” said Zehrid Osmani at Martin Currie Investment Management. “But valuation discipline has to be an important angle for investors. We would need to see a broadening of the earnings momentum at the moment.”

Corporate Highlights:

Microsoft Corp.’s $13 billion investment in OpenAI raises concerns that the tech giant could extend its dominance in cloud computing into the nascent artificial intelligence market, the Federal Trade Commission said in a report released Friday.
The Supreme Court unanimously upheld a law that threatens to shut down the wildly popular TikTok social media platform in the US as soon as Sunday, ruling that free speech rights must yield to concerns that Chinese control of the app creates a national-security risk.
US auto safety regulators are probing General Motors Co. over concerns that more than 870,000 of its full-size pickup trucks and SUVs face the risk of engine failure.
Applied Materials Inc. and Lam Research Corp. were raised to overweight from sector weight at KeyBanc Capital Markets as the broker repositions semicap coverage toward immediate growth drivers.
J.B. Hunt Transport Services Inc. reported fourth-quarter earnings trailed expectations and it warned about first-quarter results, as well as cost pressures in 2025.
JetBlue Airways Corp. and Southwest Airlines Co. were downgraded to underperform from neutral at Bank of America Corp., which citied their lower exposure to corporate, premium and international routes.
Novo Nordisk A/S’s blockbuster drug Wegovy was targeted for price cuts by the US government and suffered a setback in a new trial, adding to growing threats to the Danish company’s early dominance in the surging market for new weight-loss treatments.
Bumble Inc. founder Whitney Wolfe Herd will return to the dating-app firm as chief executive officer, a year after she handed over the reins to a Slack Technologies Inc. executive.

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