Economic & Market Monitor
For the period ending January 17, 2025
Market Review
The stock market rallied last week in response to favorable inflation data and fourth-quarter 2024 corporate earnings reports. The S&P 500 Index advanced by 2.9%, with gains across all sectors, particularly in energy, financials, and materials. Internationally, developed and emerging markets rose by 1.9% and 1.3%, respectively.
- The Bureau of Labor Statistics (BLS) reported that its December Consumer Price Index (CPI), measured on a year-over-year basis, increased by 2.9%. Although this was above November’s 2.7% gain, it was in line with economists’ projections. December’s core CPI, which excludes food and energy prices, dropped to 3.2% from 3.3% in November. This came in below the consensus forecast of 3.3%, providing a boost to the markets.
- Longer-term interest rates moved lower on the inflation reports. Yields on 5-year and 10-year U.S. Treasury notes settled on Friday at 4.43% and 4.63%, respectively, down from 4.57% and 4.76% the prior week. With rates lower, the Bloomberg Aggregate and the Bloomberg U.S. Municipal Bond Indexes gained 1.0% and 0.3%, respectively.
- The fourth-quarter earnings reporting period is off to a strong start. Forty-two S&P 500 companies have reported their results, with over 80% of them surpassing analysts' forecasts. Several of the nation’s largest banks reported especially strong results, boosting their stock prices. Analysts estimate that overall S&P 500 earnings per share increased by 10.7% year-over-year in the fourth quarter.
Outlook
President Trump's inaugural address on Monday will be carefully analyzed for insights into his specific intentions regarding tariffs, global trade, and immigration. Policies in these areas will significantly influence market expectations for inflation and interest rates. The potential for higher inflation has been a major concern related to the incoming Trump administration. Financial markets seem to interpret his hardline stance on these issues as negotiation tactics rather than serious threats. A measured tone from Trump on Monday could support the markets, while a harsher tone could trigger some downside volatility.
- On Friday, S&P Global will release its preliminary January U.S. Composite Purchasing Managers' Index (PMI). The PMI measures the performance of the services and manufacturing sectors of the domestic economy and is anticipated to indicate continued expansionary economic conditions.
Roger Khlopin, CFA
Chief Investment Officer
Aaron Nghiem, CFA, CIMA
Senior Portfolio Manager
This material is provided for educational purposes only and is not intended to be relied upon as a forecast, research, or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Bank of Hawaii and its affiliates do not provide tax, legal or accounting advice. This material is not intended to provide, and should not be relied on for, tax, legal, or investment advice. You should consult your own tax, legal, accounting or financial professional before engaging in any transaction. Neither the information nor any opinions expressed herein should be construed as a solicitation or a recommendation by Bank of Hawaii or its affiliates to buy or sell any securities, investments, or insurance products. Investing involves market risk, including possible loss of principal, and there is no guarantee that investment objectives will be achieved. Past performance is not a guarantee of future results.
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