Source: Caixin News
Author: Xiaoxiang

Turning the page on the Calendar is often a moment to look to the future. However, for Wall Street at the beginning of the new year, the determination of the future seems rather unclear...

Although last Friday the mood in the US market was high, for most of the time after Christmas, traders of various assets have been suppressing the strong risk appetite that dominates the market for most of 2024 - the volatility of US Treasuries and corporate credit assets has quietly risen; the stock market encountered one of the most severe year-end declines in history; the favored products in the eyes of global speculators - tracking$Bitcoin (BTC.CC)$the spot ETF also experienced the worst capital outflow in history...

Although there are no clear signs in the US market that people are in complete panic, the market's trend does reflect a sense of vigilance that has basically not existed in the past 12 months - at least in terms of risk assets.

The resilience shown by the USA economy last year and the Federal Reserve's easing policies have been the secret behind the nearly vertical rise of various risk assets. However, in the past few weeks, concerns about Trump's potential policies and their possible rekindling of inflation have begun to awaken the hedging market, and the bond market remains turbulent after the 10-year U.S. Treasury yield recorded its largest quarterly increase in over two years.

In memory of the late former president Carter's passing, the NYSE will be closed for one day this Thursday, marking the third consecutive week of a shortened trading week for the USA market. However, newswise, this week could be extremely important for the market at the beginning of the year.

Wall Street traders will focus on the first non-farm payroll night of the new year, hoping that Friday's December non-farm report will indicate that the USA job market is stable but not overheated, thus supporting expectations for a rising stock market in 2025. Additionally, the release of the Federal Reserve minutes and speeches from several Federal Reserve officials are also expected to be closely watched this week.

Many industry insiders believe that whether the US stock market can perform outstandingly for the third consecutive year still partly depends on the performance of the USA economy in the new year, and labor market data will be one of the most critical indicators for measuring economic health. The Federal Reserve lowered its expectation for the number of rate cuts in 2025 during the December meeting, which shocked the market, and the latest data may help clarify the Federal Reserve's interest rate plans.

Anthony Saglimbene, chief market strategist at Ameriprise Financial, stated, "Investors are looking for a solid confirmation of labor trends, which means that the economic outlook may remain strong."

Saglimbene also pointed out, "I believe that any data indicating economic weakness is more severe than expected could trigger volatility."

Affected by strikes in the aviation industry and hurricanes, the fluctuations in the USA labor market data have been significant over the past few months. Currently, the median estimate from economists surveyed by the media indicates that the USA is expected to add 160,000 non-farm jobs in December, down from the previous value of 227,000, while the unemployment rate is expected to remain at 4.2%.

Angelo Kourkafas, senior investment strategist at Edward Jones, stated that following the previous two (relatively distorted) reports, this week's non-farm report may be the first one where the potential trends in the labor market can be interpreted more clearly. The market is looking for a suitable number in the employment report—neither too hot nor too cold.

In addition to the specific performance of non-farms, this week investors are expected to closely focus on the release of the Federal Reserve's December meeting minutes on Wednesday, to further understand how indecisive the Federal Reserve policymakers were regarding the stance on interest rate cuts at that time.

As we have mentioned multiple times before, although there was only one dissenting vote against the interest rate cut at the Federal Reserve's last meeting, the dot plot indicated that as many as four officials might not have supported an interest rate cut in December. Additionally, during that meeting, up to 15 out of 19 Federal Reserve officials believed that inflation faced upward risks, while only three had made the same prediction during the September meeting.

Among the Federal Reserve officials who made statements at the beginning of the new year, Federal Reserve Governor Christopher Waller and San Francisco Fed President Mary Daly both stated last weekend that the Federal Reserve must complete the battle against soaring prices following the pandemic and achieve the 2% inflation target. Daly mentioned that despite significant progress in alleviating price pressures over the past two years, inflation remains 'alarmingly above our target.'

According to the financial Calendar, the following Federal Reserve officials will make appearances this week:

On Monday at 22:30 Beijing time, Federal Reserve Governor Lisa Cook will speak;

On Thursday at 22:00, Philadelphia Fed President Patrick Harker will speak;

On Friday at 01:40, Richmond Fed President Tom Barkin will speak;

On Friday at 02:30, Kansas Fed President Esther George will speak about economic and monetary policy outlook.

Regardless, the beginning of the New Year and the trend of January's market may have critical indicative significance for the fate of the entire year in 2025. Statistics from the "Stocks Trader's Almanac" show that in the past 18 years following presidential elections, 14 of those years had trends consistent with January. Since 1950, every January that declined has resulted in generally poor or weak market performance, such as bear markets, stagnant markets, or a 10% correction.

This Wednesday will also end the first five trading days of January, which are historically a crucial guide to assessing the market trend for this month and even the entire year. "Investors will first think, 'What does a disappointing Santa Claus rally mean for the first five trading days of January?' and 'What does the first five trading days of January mean for the entire month?'" said Sam Stovall, Chief Investment Strategist at CFRA Research. "I do believe that the market performance in January will be an important indicator for the entire year's performance."

Chris Zaccarelli, Chief Investment Officer at Northlight Asset Management, expressed, "We are a bit surprised by the extreme caution of the market at the end of 2024, but it is possible for the market to experience a slight rise in 2025. Of course, considering the policy adjustments that the new Trump administration may make, we think it is reasonable to reduce some risk exposure."

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Editor/Rocky