MARKET WRAP

The first non holiday trading week of 2025 began with equities showing some broad strength. The S&P 500 (SPX) was higher by 0.55% and the Nasdaq 100 (QQQ) higher by 1.15%. Notably, the market has been holding steady near the SPX 6000 level despite ongoing pressure in treasuries. The 10 year treasury yield was higher again today, while TLT declined further, down 0.45%, hitting a one-year low and nearing multi-year lows last seen in October 2023. Rising yields could still remain a headwind for equities unless rates stabilize or reverse. The rate-sensitive Russell 2000 (IWM) reversed intra-day and closed unchanged. Chip / AI stocks lead gains with Nvidia up 3.43%, Micron up 10.45%, Applied Materials up 4.36% and ASML Holdings higher by 7.58%. Notable Decliners included Palantir, down 4.97%.

MRKT MATRIX: January 6, 2025

Today’s Top Stories:

• Morgan Stanley Strategist Wilson Warns of Risk to Stocks As Yields Surge (Bloomberg)

• Dollar Falls Most in Two Months on Report Trump to Limit Tariffs (Bloomberg)

• Unemployed Office Workers Are Having a Harder Time Finding New Jobs (WSJ)

• Trader Who Made Billions in 2008 Returns to Bet on Market Swings (Bloomberg)

• How Much Did Analysts Cut EPS Estimates for S&P 500 Companies for Q4? (FactSet)

• The risky trend in ETFs exploding in interest as global investors clamor for more ways to play tech (CNBC)

• Nvidia-Partner Hon Hai’s Shares Climb After AI Spurs Sales Beat (Bloomberg)

• Microsoft pauses construction on portions of Mount Pleasant project (Wisconsin Public Radio)

• Nippon Steel, US Steel File Lawsuits in Move to Keep Deal Alive (Bloomberg)

• Trudeau to Resign as Voters Sour on His Vision for Canada (WSJ)

Today’s On The Tape is Presented by CME Group, iConnections and SoFi

What Should Investors Look Forward To In 2025?

Dan Nathan, Guy Adami, and Liz Thomas of SoFi discuss recent market trends and outlooks. The conversation highlights significant stock movements from companies like Tesla and Nvidia, the implications of bond yield fluctuations, and ongoing economic and policy developments, including tariffs and inflation. Expectations for sectors like healthcare, materials, and industrials are explored, alongside discussions on passive investing impacts. Additionally, they assess the performance and potential of tech stocks, noting their significant influence on market direction.

Timecodes:

0:00 - Rate Impact

17:45 - Financial Crisis Comps

24:45 - 2025 Surprises

WHAT’S AHEAD?

Here’s what to watch for the rest of the week as well as some notes on market conditions:

Potential Market Catalysts

• NFP Jobs Report (Friday): The Non-Farm Payrolls (NFP) report will be the week’s headline event. While inflation data (CPI) dominated market movements early in 2024, reduced volatility in inflation metrics has shifted traders' focus to employment numbers and Federal Open Market Committee (FOMC) updates.

• Market Expectations: The options market is pricing in an estimated 1.2% move for the week.

Other Highlights

• Consumer Electronics Show (CES): Running Tuesday through Friday in Las Vegas, CES will showcase innovations from companies like Qualcomm and Abbott Labs. Keynote speakers include leaders from Alphabet, AMD, and Nvidia.

• Market Closures: Equity markets will close on Thursday in observance of President Jimmy Carter’s funeral. Bond markets will close early at 2 p.m. Eastern.

• Earnings Season: While major earnings reports kick off next week with JPMorgan on January 15, a few early reports trickle in this week, including Delta Airlines on Friday morning.

Key Events This Week

Monday, January 6

• 9:30 p.m. (ET): Nvidia CEO Jensen Huang delivers a keynote at CES in Las Vegas.

Tuesday, January 7

• 10:00 a.m.: ISM Services PMI

Wednesday, January 8

• 8:15 a.m.: ADP Employment Change

• 2:00 p.m.: FOMC Meeting Minutes

Thursday, January 9

• Equity markets closed for President Jimmy Carter’s funeral.

• Bond markets close early.

Friday, January 10

• Earnings (Pre-market): Delta Airlines (DAL), Walgreens Boots Alliance (WBA)

• 8:30 a.m.: NFP Jobs Report

• 10:00 a.m.: University of Michigan Consumer Sentiment

This Week’s Equity and Option Conditions

The S&P 500 (SPX) continues to hover near the 6000 level, reflecting the choppy (but sometimes quite volatile), sideways market action that has persisted since the sharp post-election rally.

Key Dynamics

• Range-Bound Movement: The highest probability is for a continuation of this pattern, with stocks struggling to break out while dips are being consistently bought.

• Options Market Influence: However, much of the options positioning that previously acted as a ceiling around 6100 has now rolled off following the expiration of 2024 year-end contracts. The options market has a much less dampening effect on equities than it did a few weeks ago and a breakout above the 6100 level will face less resistance.

• Elevated Tail Risks: Options pricing continues to indicate historically high tail risks in both directions, suggesting traders are preparing for a potential resolution to the current range-bound market in the next 15 to 45 days. In which direction remains to be seen, but traders should keep an eye on the SKEW readings as well as VIX to get a sense of overall implied volatility versus tail risk uncertainty.

Summary: After a long period where options prices were historically way overpriced versus day-to-day market movement (into the election) the past 30 days+ has seen a reversal, where options were underpriced versus the day-to-day market volatility. That suggests some thinness and uncertainty starting to creep into the equity backdrop that has not yet resolved itself one way or the other. The next move in the market could test those tails outside the recent range and may be dependent on the next move in treasury yields. Keep an eye on TLT, with a bounce back above 90 likely bullish for equities and a continued drop back to the low 80’s likely bearish for equities to start 2025.

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