U.S. stocks have enjoyed strong growth over the past two years, led by tech and AI stocks, and are expected to continue their strong growth into 2025. Concerns about high valuations and the dominance of the Magnificent Seven tech stocks remain. Tesla’s deliveries declined in the fourth quarter of 2024 due to increased competition and subsidy cuts. January has historically been a strong month for U.S. stocks, and technical analysis suggests the S&P 500 may be poised for a recovery.
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US stocks just completed their second year of big hits, pushing Wall Street indexes to a new ATH. As President-elect Donald Trump prepares to return to the White House, markets are currently focused on his impressive hat trick of recent years.
Many see a combination of a strong economy supporting corporate profits, easing interest rates and pro-growth policies as reasons why 2025 could be another positive year for U.S. stocks. The S&P 500 index just posted its second year of growth of more than 20%, which also marks its biggest two-year gain since 1998, according to Reuters.
Concerns about the superiority of “Magnificent 7”
Over the past two years, market participants have also asked many questions. That’s because while this rally has been driven by tech and AI stocks, the epic 7 now accounts for about 35%+- of the S&P 500. This is causing concern for many who are comparing the rise in AI stocks to the rise in the dot-com bubble.
The Magnificent Seven is expected to continue its strong performance, but its relative outperformance compared to the S&P 493 is projected to be only 7% in 2025, leading to a change in market leadership. It shows possibilities. This is according to data from Goldman Sachs Global Investment Research.
Source: Goldman Sachs Global Investment Research, Isabelnet (click to enlarge)
With the S&P 500 index trading at 24.82 times expected earnings for the next 12 months in 2024, market participants do not appear to be as concerned about the high valuation environment. That’s well above the long-term average of 15.8 and far behind the 22.6 level, which reached its highest level since early 2021 earlier this month, according to LSEG.
The downside to high valuations is that history has shown that stock prices become more volatile when market expectations are not met and volatility is frequent. Will we see more of the same in 2025?
Tesla deliveries begin in fall – competition intensifies
Elon Musk has been in the news lately for his increasing political and socio-economic comments. However, with Tesla announcing its first decline in annual deliveries on Thursday, fewer electric vehicle deliveries were expected in the fourth quarter than expected and incentives did not increase demand for electric vehicles worldwide. The year couldn’t have gotten off to a worse start for the richest man. That old model.
Tesla is facing challenges due to subsidy cuts in Europe, a shift toward low-cost hybrid cars in the United States, and increased competition from China’s BYD.
Tesla fell as much as 3.5% before the opening bell and remains down around 3.8% at the time of writing. Nevertheless, the Nasdaq 100 continued to dominate after the opening bell, with the index up just over 1%.
Looking to the future
Looking back at January’s historic performance, an interesting picture emerges. Available data shows that January typically sees high investor activity in the stock market, with large inflows as the start of a new year often stimulates new investment strategies and goals. Masu.
Another interesting data point for January shows that U.S. stocks tend to perform solidly in the first half of January due to factors such as increased investment activity and positive investor sentiment post-New Year.
Source: Isabelnet, Goldman Sachs (click to enlarge)
Given the above and the lackluster Santa Rally, are US stocks trending higher ahead of President Donald Trump’s inauguration on January 21st?
technical analysis
S&P500
From a technical perspective, the S&P 500 index remains bearish on a daily basis after a series of lower highs and lower lows.
However, market participants have not been able to break any significant lows over the past three trading days, indicating that bullish pressure may be building. A bullish daily candlestick closing price or aa doge daily candlestick closing price could set the stage for a recovery in the index.
Confirming the daily chart above and a daily candlestick close above the recent swing high of 6026 is needed for any structural changes that could further encourage the bulls. This could push it towards new all-time highs.
The 100-day moving average is stuck at the 5804 handle, and we cannot rule out the possibility of a test of this before a move to the upside. Support below the 100-day moving average could be found at 5757, 5700, and 5669, respectively.
S&P 500 daily chart, January 2, 2025
Source: TradingView (click to enlarge)
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For additional market news and insights, follow Zain on Twitter/X @zvawda
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