Aurelia Butler

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NEW YORK (Reuters) -After closing the books on a banner year for U.S. stocks, investors expect to ride seasonal momentum into mid-January when a slew of economic data and a transition of power in Washington could send markets moving.The S&P 500 rose roughly 25% in 2024 through Dec. 27, while the technology-heavy Nasdaq Composite index (IXIC), which surpassed 20,000 for the first time in December, is up over 31%.On Friday, however, stocks sold off amid some profit taking and questions about how markets could perform in January, according to analysts and traders.”There are concerns that maybe the first part of (next) year can involve some repositioning and reallocation of funds and those that are trading today and next week are probably just trying to get a little bit ahead of that,” said Robert Pavlik, senior portfolio manager at Dakota Wealth.Stocks tend to do well in the last five trading days of December and into the first two days of January, a phenomenon dubbed the Santa Claus rally, which has driven S&P gains of an average of 1.3% since 1969, according to the Stock Trader’s Almanac.Despite the Friday selloff, for the last five trading sessions, the S&P rose 1.77%, while the Nasdaq was up 1.8%.Just how long upward momentum lasts will depend on several forces that could help drive markets in 2025.Monthly U.S. employment data on Jan. 10 should give investors a fresh view into the health and strength of the U.S. economy. Job growth rebounded in November following hurricane- and strike-related setbacks earlier in the year.The market’s strength will be tested again shortly after, when U.S. companies start reporting fourth-quarter earnings.Investors anticipate a 10.33% earnings per share growth in 2025, versus a 12.47% expected rise in 2024, according to LSEG data, although excitement over President-elect Donald Trump’s policies is expected to boost the outlook for some sectors like banks, energy and crypto.”There’s the hope that taxes and regulations will be lowered or reduced next year, that will help support corporate profits, which are what drive the market in the first place,” said Michael Rosen, chief investment officer at Angeles Investments.Trump’s inauguration on Jan. 20 could also throw the markets some curve balls. He is expected to release at least 25 executive orders in his first day on a range of issues from immigration to energy and crypto policy.Trump has also threatened tariffs on goods from China and levies on products from both Mexico and Canada, as well as to crack down on immigration, creating costs that companies could ultimately pass on to consumers.Helen Given, associate director of trading at Monex USA, said a new administration always brings with it a large degree of uncertainty. There is also a good chance the impact of the Trump administration’s expected trade policies is far from fully priced into global currency markets, she added.”We’re looking ahead to see which of those proposed policies actually are enacted, which might be further down the pipeline,” Given said, adding she expected a big impact on the euro, Mexican peso, the Canadian dollar, and the Chinese yuan.The conclusion of the Federal Reserve’s first monetary policy meeting of the year in late January could also present a challenge to the U.S. stocks rally.Stocks tumbled on Dec. 18 when the Fed implemented its third interest-rate cut for the year and signaled fewer cuts in 2025 because of an uncertain inflation outlook, disappointing investors who had expected lower rates to boost corporate profits and valuations.Still, that could be good for alternative assets like cryptocurrencies. The incoming crypto-friendly Trump administration is adding to a number of catalysts that are boosting crypto investors’ confidence, said Damon Polistina, head of research at investment platform Eaglebrook Advisors.Bitcoin surged above $107,000 this month on hopes of friendlier Trump policies.  More

Powell’s challenge lies in managing monetary policy without appearing to preemptively counter potential inflationary pressures from the incoming administration’s policies.The balancing act has been evident in recent months. Shortly after Trump’s election victory in November, Powell emphasized that the Fed wouldn’t speculate on how future policies might influence interest rates.“We don’t guess, we don’t speculate, and we don’t assume,” Powell said on Nov. 7. However, the Fed’s latest projections suggest some officials are already accounting for policy changes, signaling fewer rate cuts in 2025 due to inflation concerns.Last week, the Fed cut rates by a quarter point, completing a full percentage point reduction since September. Despite this, updated forecasts revealed a more cautious stance on easing.Most officials now anticipate only two cuts next year, down from four projected in September. Inflation is expected to remain at 2.5% in 2025, up from earlier forecasts of 2.2%. Notably, 15 of 19 Fed officials see a risk that inflation could exceed projections.Michael Gapen, chief U.S. economist at Morgan Stanley (NYSE:MS), noted the shift. The latest meeting “came out much more hawkish than we thought because they did what they said they weren’t going to do: They said they weren’t going to speculate on policies and then a month later they decided to speculate on policies,” he said.A key factor behind this caution is Trump’s proposed economic agenda, which includes tariffs and stricter immigration policies. Tariffs could drive prices higher, while tighter border controls might constrain labor supply, increasing wages. Powell has downplayed the direct impact of Trump’s election on inflation forecasts, attributing the shift to recent inflation data instead.Despite this, Powell has, according to the Wall Street Journal, privately advised colleagues to tread carefully in public remarks to avoid perceptions of political bias. This approach aligns with Powell’s efforts to maintain the Fed’s reputation for apolitical, data-driven decision-making.The stakes are high. Powell recalls the Fed’s experience during Trump’s first term when trade wars led to rate cuts. Yet the current environment differs. Inflation has been elevated, unlike the low-inflation backdrop of 2018. Powell highlighted this distinction at his Dec. 18 press conference, referencing past internal Fed analyses.“What the committee’s doing now is discussing pathways and understanding again the ways in which tariffs can affect inflation and the economy,” said Powell. “It puts us in position, when we finally do see what the actual policies are, to make a more careful, thoughtful assessment of what might be the appropriate policy response.”Trump’s advisors argue that deregulation and increased energy production could offset inflationary risks. Treasury secretary-designate Scott Bessent downplayed concerns.“Tariffs can’t be inflationary because if the price of one thing goes up, unless you give people more money, then they have less money to spend on the other thing, so there is no inflation,” he said on a radio program hosted by Larry Kudlow, a former Trump adviser.Still, analysts believe the Fed will respond cautiously if supply-side improvements reverse.“In this environment, you’re not coming from six years of below-target inflation. You’re coming from a few years of being well above target,” notes JPMorgan’s chief economist Michael Feroli.Other analysts suggest that the economic environment will significantly influence how much businesses pass rising costs to consumers.Economist Ray Farris believes that with full employment, cost increases are more likely to be passed through than during a downturn. He also highlights the uncertainty around how quickly companies adjust prices, explaining that gradual increases could make inflation appear more persistent to the public. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Mexico is sitting on more than half a billion litres of tequila in inventory, almost as much as its annual production, as the fast-growing industry reckons with slowing demand and the prospect of tariffs on exports to the US under Donald Trump.By the end of 2023, the industry had 525mn litres of tequila in inventory, either ageing in barrels or waiting to be bottled, according to data shared with the Financial Times by the Tequila Regulatory Council. Of the 599mn litres of tequila produced last year, about one-sixth remained in inventory, according to the figures. “Much more new spirit is being distilled than is being sold, and inventories are starting to accumulate,” said Bernstein analyst Trevor Stirling, attributing the build-up to falling demand and new distillery capacity that has recently begun operating in Mexico. “The tequila industry is set for a very turbulent 2025.”Consumers’ thirst for Mexico’s national drink grew rapidly over the past decade as the spirit went mainstream in the US, partly thanks to celebrity-backed brands such as George Clooney’s Casamigos.But demand has fallen back over the past 18 months as the pandemic spirits boom subsided and consumers cut back on their drinking in response to higher prices. The amount of spirits sold in the US in the first seven months of the year shrank 3 per cent compared with the same period last year, according to drinks data provider IWSR. Tequila consumption fell 1.1 per cent, compared with a 4 per cent rise in 2023 and a 17 per cent rise in 2021, the height of the tequila surge.Though some of the inventory is in the process of being aged, rather than just awaiting bottling, tequila evaporates rapidly compared with other ageing spirits — partly because of Mexico’s warm climate — meaning that most tequila is not left in barrels beyond three years. Demand has fallen back over the past 18 months as the pandemic spirits boom subsided More

TUNIS (Reuters) – Tunisian central bank said on Saturday it had left its benchmark interest rate unchanged at 8%, adding that borrowing costs were consistent with the inflation outlook. Inflation will average 7% this year before dropping to 6.2% in 2025, the bank said in a statement following its board meeting. More