Weekly Market Recap: Navigating 2025’s Early Market Shifts

Market Overview

The S&P 500 ended its first full trading week of 2025 down 1.9%, reflecting a rocky start to the year. Despite an unseasonably weak finish to an otherwise stellar 2024, the S&P 500 remains above its longer-term uptrend. There also has been no major risk-off rotation within the index as cyclical/offensive sectors continue to lead on a relative basis. Concerns from 2024 persist, with inflation and labor market dynamics influencing monetary policy expectations.

Last week’s labor market data highlighted strong job growth, with the U.S. adding 256k jobs in December, beating expectations of 165K.

As immigration's effects become clearer, the labor market may appear slightly softer, but it still supported solid growth in 2024. This trend is expected to continue in 2025, with steady economic activity and corporate earnings enabling employers to add an average of 150,000 jobs per month.

Federal Reserve Insights 

Treasury yields continue to rise despite monetary policy easing, creating a paradox in financial markets. Since the Fed's December 18 rate cut, the 10-year Treasury yield has climbed 0.4%, totaling a 1.0% increase since rate cuts began in September. While equity investors initially tolerated rising rates due to strong economic data, the dynamic shifted as yields kept climbing even as economic surprises turned negative. The divergence stems from an increasing Treasury term premium, driven by inflation concerns and the large Treasury supply needed to finance the growing U.S. deficit

The Week Ahead

Key economic releases to watch in the upcoming week include:

• CPI & PPI
• Retail Sales