1/12/25

Weekly Market Recap

After the second trading week of 2025, global stocks have seen slight declines. The S&P 500 currently has a year-to-date return of -1.48%, while international stocks are down 0.85% YTD. Most of the declines occurred this past Friday after the December employment report was released. A total of 256,000 jobs were added in December, significantly higher than the median forecast of 155,000. While this is good news for the economy, it might give the Federal Reserve reason to pause before continuing to cut interest rates, which is likely the main reason stocks fell on Friday. December’s inflation data will be released next Wednesday and will be a closely watched metric, as inflation and employment are two key factors the Fed considers. Another important indicator for the markets will be corporate earnings reports, which will start coming in next week. Several major banks, such as JPMorgan, Citigroup, and BlackRock, are set to report earnings next Wednesday. The last week of January will be significant, with many large tech companies such as Microsoft, Apple, and Tesla also reporting earnings. Valuations for these stocks are high, so strong earnings will likely be needed to sustain the rally in the stocks.

Chart of the Week

This week’s chart highlights the difference between the yield on the U.S. 10-year bond and the average 10-year yield of international bonds (specifically from Australia, Canada, the Eurozone, Japan, Sweden, Switzerland, and the UK). Currently, the yield difference is 2.1%, meaning the U.S. 10-year bond is paying 2.1% more than the 10-year bonds of other countries. This presents a compelling case for owning U.S. bonds. However, this yield gap is unlikely to persist indefinitely. As non-U.S. investors take note of the higher yields on U.S. bonds, it’s likely they will increase purchases, pushing bond prices up and yields down. Of course, many other factors, such as inflation, economic growth expectations, and others, also influence yields.

Written by:

Ben Rones, CFA®

Senior Analyst at R&R Financial

The commentary in this newsletter is for informational purposes only and should not be taken as personalized investment advice

Chart of the week Source: FactSet, J.P. Morgan Asset Management; (Left) ICE; (Top right) BEA; (Bottom right) BIS.
Currencies in the DXY Index are: British pound, Canadian dollar, euro, Japanese yen, Swedish krona and Swiss franc.
*Interest rate differential is the difference between the 10-year U.S. Treasury yield and a basket of the 10-year yields of each major trading partner (Australia, Canada, Eurozone, Japan, Sweden, Switzerland and UK). Weights in the basket are calculated using the 10-year average of total government bonds outstanding in each region.
Guide to the Markets – U.S. Data are as of January 9, 2025.