Baker Market Update
2025-01-03

For an odd week that started out in one year and ended in the next, markets have been relatively calm. 2025 is kicking off similar to where 2024 ended, with stocks trying again to halt their recent slide, the dollar holding strong, and Treasury yields materially higher than just a few weeks ago. There was little in the way of economic data out this week, so investors have been eagerly looking ahead to important releases out next week for more insight on the health of the economy and trying to brace for likely policy changes to come under the next Trump administration.

Members of the newly-elected 119th Congress are being sworn in today and President-elect Trump will be sworn in on January 20th. Economic analysts believe there is a lot of uncertainty around how the policies of the new administration could impact the economy. Trump's campaign proposals to lower corporate taxes, ease regulations, impose tariffs, and restrict illegal immigration could help boost corporate profitability and the economy, but could also stall progress on inflation and the pace of monetary easing.

A still stable labor market and stubborn inflation has lifted Treasury yields in recent weeks and boosted demand for the U.S. currency. The yield on the 10-year Treasury note now appears pinned near the psychological level of 4.5%. Data out yesterday supported the view that the labor market is holding up well. Initial jobless claims showed that Americans filing new applications for unemployment benefits dropped to an eight-month low last week. Continuing claims, a proxy for the number of people receiving benefits, also fell to a three-month low.

As data continues to signal resilience in the economy, Fed funds futures traders are betting that the Federal Reserve will lower interest rates by less than 50bps over the course of the year. December’s “dot plot” from the Federal Open Market Committee (FOMC) showed that committee members expected to cut 50bps in 2025 at their last meeting.

Next week is the all-important “jobs week” where we get several readings on the state of the U.S. labor market. Wednesday will also bring the release of December’s FOMC meeting minutes, which will provide more detailed information on the Committee members' views about the economic outlook and their near-term monetary policy inclination.

Happy 2025 to all! Wishing all our clients a prosperous new year, one that brings each of you as much luck as our own Justin Kinzer who ended the year with not one but TWO holes-in-one in a single round! Kickingbird Golf Course, #6 and #16.