After a brilliant year in the USA stock market, investors anticipate a seasonal trend in mid-January, when a series of economic data and the power transition in Washington may drive market volatility.

As of December 27, the S&P 500 Index has risen by about 25% in 2024, while the tech-heavy Nasdaq Composite Index initially broke through 20,000 points in December last year, up over 31%.

However, analysts and traders reported a sell-off in the stock market on Friday due to some profit-taking and skepticism regarding January's market performance.

Robert Pavlik, Senior Portfolio Manager at Dakota Wealth, said: "There are concerns that there could be some repositioning and reallocation of funds in the first half of next year, and investors trading today and next week may just want to be proactive."

The stock market often performs well during the last five trading days of December and the first two days of January, a phenomenon known as the "Santa Claus Rally." According to Stock Trader's Almanac, this rally has pushed the S&P 500 Index up an average of 1.3% since 1969.

Despite the sell-off last Friday, the S&P 500 Index has risen by 1.77% over the past five trading days, and the Nasdaq Index has increased by 1.8%.

How long the upward momentum can last will depend on several forces that may help drive the market in 2025.

The USA's monthly employment data, set to be released on January 10, should provide investors with a new perspective on the health and strength of the USA economy. Following setbacks earlier this year caused by hurricanes and strikes, the job growth in November showed a rebound.

Soon after, when USA corporations start to announce their fourth-quarter earnings, the strength of the market will be tested again.

According to LSEG data, investors expect EPS to grow by 10.33% in 2025, while a growth of 12.47% is expected in 2024, although excitement over the policies of President Trump is anticipated to boost the outlook for some Industries like Banks, Energy, and Cryptos.

Michael Rosen, Chief Investment Officer of Angeles Investments, stated: "People hope that tax and regulatory conditions will ease or reduce next year, which will help support corporate profits, as corporate profits are the fundamental factor driving market growth."

Trump's inauguration on January 20 may also bring some surprises to the market. It is expected that he will issue at least 25 executive orders on his first day in office, covering a range of issues from immigration to Energy and Cryptos policy.

Trump has also threatened to impose tariffs on Mexico, Canada, and China, and to crack down on immigration, while corporations may ultimately pass the costs onto Consumers.

Helen Given, Deputy Director of Trade at Monex USA, stated that the transition to a new government always brings significant uncertainty. She also added that the anticipated effects of Trump's trade policies are likely far from being fully reflected in the Global MMF market.

Given mentioned, "We are looking ahead to see which policies from these proposals will actually be implemented and which ones may still need further development." She expects significant impacts on the Euro, Mexican Peso, Canadian Dollar, and Renminbi.

The Federal Reserve's first monetary policy meeting of the year, which ended at the end of January, may also pose a challenge to the rise of the USA stock market.

On December 18, the Federal Reserve implemented its third interest rate cut of the year and hinted that the number of rate cuts in 2025 would be reduced due to uncertainties in the inflation outlook, leading to a significant decline in the stock market and disappointing investors who initially expected that rate cuts would boost corporate profits and valuations.

However, this might be a good thing for alternative assets like Cryptos. Damon Polistina, head of research at investment platform Eaglebrook Advisors, stated that the incoming Trump administration, which is friendly towards Cryptos, is increasing some catalysts to boost the confidence of cryptocurrency investors.

Due to more favorable expectations regarding Trump’s policies, Bitcoin soared to over $107,000 this month.

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