by Ivan Martchev
January 7, 2025
It is still early in January, and we will hear many repeat the old saying, “As goes January, so goes the year,” or the short-term version, “As goes the first week of January, so goes the year,” when it comes to the performance of the stock market. The fact is that I have seen plenty of weak first weeks of January and strong finishes to the year but, so far, the shortened first week of 2025 is up over the first two days.
It is hard to get a down market for the year without a recession, and there is no recession in sight, so far. The announced Trump policies can only be categorized as a fiscal stimulus, so in a strong economy we should see an appreciating stock market. I am sure there will be plenty of drama between now and the end of the year, but I expect the stock market to be up by the end of 2025.
In retrospect, the weakness in the stock market in late December was probably due to ill-liquid volumes and the spike in 10-year Treasury yields to above 4.50%. If we spike above 5% Treasury rates in 2025, I would not be surprised to see a deeper correction, but such timing is impossible to predict in advance.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Surging Treasury yields and a surging dollar are both Trump trades, so to speak. High Treasury yields are the result of expected stronger economic growth and lax tax policies, and the surging dollar is a direct result of higher Treasury yields and expected successes on the ambitious Trump trade agenda.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
strength, there are factors on the European side driving euro weakness, which is the mirror image of dollar strength, as the euro is the largest component of the U.S. Dollar Index (DXY), at 57%.
Europe will likely make rate cuts in 2025, and the European economy is much weaker than that of the U.S. Also, Europe has a major energy problem with its botched de-carbonization policies and its attempt to wean itself from reliance on a Russian pipeline for natural gas. While they are shunning Russian pipeline gas, they are at the same time the biggest buyer of Russian LNG, which – needless to say – is bizarre.
The irony is that LNG is much more expensive than gas through pipelines, so spiking energy prices, be they for electricity or natural gas, put the European economies at a disadvantage. You can see this in the election outcomes in France and other countries, and you are likely to see more of the same in the German federal election, where euro-sceptic and anti-establishment political parties are likely to see a huge surge.
In short, the European economy is growing weaker, and its prospects are not bright, although an end to the war in Ukraine will likely cause a surge in the euro, particularly if it comes this spring. If the war does not end soon, euro/dollar parity is only a matter of time, and if the war doesn’t end this year, I won’t be surprised to see the euro fall below its 2022 low of $0.9538 (as seen on the chart, above).
The post 1-7-25: More Dollar Strength Coming appeared first on Navellier.
