Economy
There wasn't a whole lot on deck in terms of new economic data out as it was a holiday week, but the table is set for next week's jobs numbers. On Wednesday, the payroll company ADP will release its data on employment numbers. The following day, we'll see the weekly initial jobless claims, which is the number of people who filed for unemployment insurance (this number hit the lowest level this week since late April 2024). Then on Friday, we'll have the widely anticipated monthly jobs numbers for December from the Bureau of Labor Statistics. This last number has been closely watched by the Fed as they navigate through data setting their interest rate policy. Continued strong data from the labor market could suggest fewer rate cuts this year. Over the past month or so, Wall Street has reigned in expectations for lower rates as it processes a combination of sticky inflation, a strong economy, and an incoming administration that promises tariffs and tax cuts.
Markets
The S&P 500 fell by 0.4% this week as we entered a new year that will bring both challenges and opportunities. Earnings season is set to get underway in a little under two weeks, and there are high expectations for corporations this year. Wall Street is expecting double digit growth in corporate profits in 2025, which might be needed to justify the elevated multiple that stocks are trading for.
Last week we mentioned how concentrated the market has become, with a handful of companies representing an ever growing piece of the pie of the S&P 500. An investment research company, DataTrek, reports that the S&P 500 returned 24.2% and 23.3% in 2023 and 2024, respectively. However, removing the "Magnificent 7" companies, the returns would be a paltry 4.1% and 6.3%. Investing in anything but a market cap-weighted index would have been very challenging the last two years. The Mag 7 companies are expected to see earnings growth of more than 20% this year. Last year the rest of the S&P 500 (we'll call it the S&P 493) was expected to see earnings growth of just 4%. This year expectations are 13% for the S&P 493, and it would be nice to see broader growth in the market. There are two ways the market becomes less concentrated, and the preferred way would be for the rest of the market to expand its share.
What We're Reading
Have a great weekend.
Dogwood Wealth Management