Week in Review: Mixed Start to the New Year as Markets Digest Gains and Losses
The stock market opened 2025 with a mix of gains and declines, reflecting a volatile start to the year following a robust performance in 2024. The final trading sessions of the Santa Claus rally period ended with the major indices slightly lower, breaking the historical trend of seasonal gains.
Despite this, the week concluded with some rebound action, indicating cautious optimism among investors.
Weekly Market Performance
Small-cap stocks led the pack, with the Russell 2000 gaining 1.1 percent for the week, outperforming its larger counterparts. In contrast, the S&P 500 and Nasdaq Composite both declined by 0.5 percent. This follows their impressive annual performances in 2024, where the S&P surged 23.3 percent and the Nasdaq climbed 28.6 percent.
The Santa Claus rally period, typically associated with a 1.3 percent average gain for the S&P 500 since 1950, ended on a subdued note, down 0.5 percent. Historical patterns suggest that when the rally fails to materialize, subsequent market performance can be unpredictable, though notable gains followed similar scenarios in 2024.
Sector and Volume Trends
Energy emerged as the top-performing sector, posting a 3.2 percent gain for the week. Real estate and health care also managed to close slightly higher. However, the materials, consumer discretionary, and consumer staples sectors saw the largest declines, falling 2.1 percent, 1.5 percent, and 1.4 percent, respectively.
Trading volumes were lighter than usual due to the holiday season, with several international markets closed or operating on shortened schedules. U.S. markets remained open on Tuesday for a full trading day before closing for the New Year holiday on Wednesday.
Economic and Market Highlights
The week’s economic data painted a mixed picture. On Monday, the December Chicago PMI came in at 36.9, well below expectations, while pending home sales for November showed a stronger-than-expected 2.2 percent increase. Tuesday brought housing price indices that met or slightly missed consensus, and Friday’s ISM Manufacturing Index indicated continued contraction, though at a slower pace than in November.
Market internals revealed broad-based participation in Friday’s rally, with advancing stocks significantly outnumbering decliners. The S&P 500, however, remains below its 50-day moving average of 5944, which has shifted from support to resistance.
Outlook and Key Drivers
Looking ahead, market participants will be closely watching economic data and corporate earnings for further direction. The December jobs report and the release of FOMC meeting minutes will likely shape market sentiment in the coming weeks. Additionally, earnings season will provide valuable insights into corporate health and economic resilience as companies report their fourth-quarter results.
While the early-year turbulence may create some hesitation, the strong rebound on Friday suggests that investors remain optimistic about the broader market outlook. However, the failure of the Santa Claus rally could weigh on sentiment, as it has historically been an indicator of near-term market trends.
Investors should remain cautious and monitor key resistance levels, particularly the S&P 500’s 50-day moving average, for signs of sustained momentum. As earnings season unfolds and economic data provide further clarity, markets will likely find more definitive direction in the early weeks of 2025.