Markets @ Midday: Rebalancing Trade Highlights First Day of 2025 as Small and Mid-Caps Outperform

The first trading day of 2025 has showcased a notable outperformance in small-cap and mid-cap stocks, while mega-cap names displayed mixed results, creating what appears to be a rebalancing trade to start the year.

Leadership in Small-Cap and Mid-Cap Stocks

Small-cap and mid-cap indices are setting the pace today, with the Russell 2000 and S&P Midcap 400 climbing 0.8 percent and 0.6 percent, respectively.

This rotation into smaller names reflects potential repositioning by investors looking to capitalize on relative value opportunities after a strong 2024 for mega-cap equities.

Mixed Mega-Cap Performance

The mega-cap space painted a mixed picture. While NVIDIA and Meta Platforms led with gains of 2.7 percent and 2.6 percent, respectively, notable laggards included Apple and Tesla. Apple saw a 2.2 percent drop after UBS issued cautious commentary on iPhone demand.

Tesla sank 5.4 percent following the release of its Q4 deliveries report, which capped the company’s first-ever annual decline in deliveries.

Energy Sector Leads as Crude Prices Jump

The energy sector emerged as the top-performing group, advancing 1.4 percent on the back of higher WTI crude prices, which climbed 2.4 percent to $73.60 per barrel. This strength contrasts with the consumer discretionary sector, which trailed the broader market with a 0.2 percent decline.

Treasuries Reverse Gains

After initially rallying, Treasury yields reversed course. The 2-year yield increased to 4.26 percent from an intraday low of 4.20 percent, while the 10-year yield rose to 4.58 percent after bottoming at 4.51 percent.

This shift occurred despite a positive labor market report showing just 211,000 initial jobless claims for the week ending December 28, signaling continued resilience in the U.S. economy.

Strength in the Dollar Weighs on Multinationals

The U.S. dollar remains strong, with the Dollar Index climbing 0.8 percent to 109.34. This has pressured multinational companies, as a robust dollar can negatively impact earnings generated overseas. The euro fell 1.0 percent to 1.0251 against the dollar, reflecting ongoing divergences in economic growth and monetary policy expectations between the U.S. and the eurozone.

Market Snapshot

The Russell 2000 leads the gains with an 0.8 percent increase, followed by the Nasdaq Composite, which is up 0.5 percent. The S&P 500 is modestly higher by 0.4 percent, while the Dow Jones Industrial Average lags with a 0.2 percent advance.

Conclusion

The first trading session of the year has brought a shift in market dynamics, with investors favoring smaller-capitalization stocks and showing selectivity in mega-cap names.

Energy stocks and rising crude prices stand out as key drivers, while strength in the dollar and rising Treasury yields create headwinds. As the year unfolds, it will be critical to monitor whether today’s trends represent a broader shift or a temporary rebalancing move.