Interest Rates: A Key Uncertainty for 2025

January 7, 2025 - 22:10

As the new year begins, the stock market has not experienced the anticipated Santa Claus rally, but that hasn't deterred equities from showing signs of life in early January. Zachary Hill, Head of Portfolio Strategy at Horizon Investments, describes the concept of a Santa Claus rally as merely "a statistical anomaly." Instead, he is focusing on the upcoming earnings season as a significant catalyst for market movements in 2025.

Hill emphasizes the importance of monitoring not only the fourth-quarter earnings but also the full-year guidance for 2025. He notes a shift in market sentiment regarding the Federal Reserve's approach to growth and inflation. Currently, the S&P and small-cap stocks have seen a decline from their positions before the Fed's interest rate cuts in December.

Crucially, Hill points out that the Fed is still considering further interest rate cuts rather than increases, which will influence market dynamics. Additionally, he highlights the volatility surrounding President-elect Donald Trump's proposed tariff policies as another critical uncertainty for the year ahead.

Both interest rates and trade policies are poised to be significant factors that investors will closely monitor as 2025 unfolds.