A Busy Calendar and New Challenges Will Rock Markets This Week

The stock market wasn’t supposed to open 2025 with a thud—that, at least, was the conventional wisdom. The big rally that erupted after Donald Trump’s election in November was expected to continue well into the new year. Instead, stocks have surprised by sinking, starting in early December. The core issue? Long-term bond yields continued a surge that began in mid-September. Adding to this primary cause is the uncertainty surrounding President-elect Trump’s agenda, particularly regarding tariffs and deportations.

Weakness in some key market sectors, notably technology, has also raised alarms. Oil and gasoline prices are inching higher, and the impact of the recent wildfires in Los Angeles could weigh heavily on the broader domestic economy. With a population larger than that of 40 states and an area exceeding Rhode Island and Delaware combined, the ramifications are significant. These factors create a perfect storm for potential volatility as we rush toward President Trump’s inauguration on January 20.

Market Overview: Numbers at Week’s End

The 10-year Treasury yield stood at 4.769%, the highest level since May and notably up from a low of 3.6% in September. This surge is significant as it directly informs mortgage rates and the overall health of the housing market. Currently, rates on 30-year mortgages hover between 6.95% and 7.3%, a chilling reminder that the days of 6% or lower, which generate excitement among buyers, seem to be fading. With interest in home buying and financing also diminishing, the housing market could be poised for a downward shift.

As for the stock indexes, the Standard & Poor’s 500 Index slipped down by 1.9% for the week and saw a decrease of 4.5% since hitting its all-time high of 6,099.97 on December 6. The Dow Jones Industrial Average lost nearly 700 points on Friday, down 2.5% for the week and 7% from its December peak. The Nasdaq Composite Index saw a decline of 460 points, reflecting a 2.3% drop for the week and a 5.2% dip since its all-time high on December 16.

Key Market Players and Recent Developments

Several notable stocks are drawing attention amid this tumult. Apple (AAPL) has seen a 5.4% decrease since the start of 2025, while Nvidia (NVDA) managed to remain steady with a slight increase of 1.2%. Microsoft (MSFT) has slipped by 0.6%, Tesla (TSLA) is down 2.3%, and Walt Disney (DIS) has dropped 2.4%. It’s worth noting that while many stocks are in decline, several, like Delta Air Lines (DAL), reported robust earnings, propelling that stock up by 9% as the company hints at a record-breaking 2025.

The Pullback’s Context

If you’re worried that markets are on the cusp of crashing, it’s essential to put this in context. Emotional reactions to stock market declines often magnify fears unnecessarily. Historically, stocks tend to decline 5% or more three times a year, with declines of 10% or more occurring once annually and a 20% drop once every 6.3 years. Indeed, on Friday, 434 S&P 500 stocks were lower, but that doesn’t signify an impending doom.

The most notable loser recently was Constellation Brands (STZ), which fell 17.1% due to a cut in sales guidance. On the positive side, Delta Air Lines’ strong earnings provided a much-needed lift to market morale.

Challenges Ahead: The Importance of Inflation Reports

Looking forward, we are confronted with important inflation reports this week that will likely dictate market behavior. Bond yields are on the rise primarily because inflation remains far from the Federal Reserve’s 2% target. Recent employment data sent investors into a tizzy, concluding that interest rates will continue their ascent for the foreseeable future. Fed officials themselves have conceded that reaching the 2% goal will take longer than expected.

This week, the fourth-quarter earnings season will heat up. Major banks and financial companies will dominate headlines starting Wednesday with reports from significant players including Bank of New York Mellon (BK), Wells Fargo (WFC), JP Morgan Chase (JPM), Citigroup (C), Goldman Sachs (GS), and BlackRock (BLK). Financial stocks had an excellent run throughout 2024, and all eyes will be on them to see if they can continue to deliver strong performances amid shifting economic winds.

The Los Angeles Fires: A Significant Concern

Moreover, the Los Angeles fires, which remain largely unchecked, are creating significant financial strain. Insurance stocks that have substantial exposure to California have taken notable hits, with Allstate (ALL) down 5.6% on Friday and Mercury General (MCY) plummeting nearly 20%. Estimates suggest the damages in affected areas, including Pacific Palisades and Malibu, could exceed $52 billion, a staggering figure that will greatly affect insurance companies and the wider economic landscape.

As we brace ourselves for the upcoming week filled with market challenges and uncertainties, it is crucial to maintain a level head and adhere to traditional financial principles. While volatility may reign supreme, a well-defined strategy will help navigate these turbulent waters.