Markets Blog
David Matzko, LPL Research
LPL Research provides its Weekly Market Performance for the week of January 13, 2025. The S&P 500 moved sharply higher this week, posting its best gains since the November election, driven by a confluence of positive factors. Lower-than-expected inflation data fueled a decline in Treasury yields, boosting equities. This positive sentiment was further reinforced by a strong start to the fourth-quarter earnings season. Meanwhile, the Bloomberg Aggregate Bond Index also climbed, with investors pricing in a higher probability of multiple rate cuts in 2025 following the CPI report and dovish Fed commentary. The Treasury yield curve flattened, and credit spreads tightened across the board, further reflecting overall improved risk appetite.
Index Performance

U.S. and International Equities
U.S. Equities: The S&P 500 enjoyed its best week since the week of the election in early November thanks to better-than-expected inflation data, which pushed Treasury yields lower and firmed rate cut expectations, and a strong start to the fourth quarter earnings season. The Index traded higher every day but Thursday as market participants bought the dip after a nearly 5% pullback on the sharp move higher in rates. Policy played a role amid reports the tariff implementation would likely be gradual and that President-elect Trump and President Xi spoke by phone.
For the week, the Nasdaq fared slightly worse than the S&P 500 as value stocks outperformed on leadership from the financials and natural resource sectors. Meanwhile, the technology sector underperformed as shares of Apple (AAPL) lagged.
International Equities: European equities were broadly higher but failed to keep up with U.S. equities. With President-elect Trump taking office Monday, investors were a bit hesitant to shift to overseas markets with so much trade uncertainty. Japanese equities struggled ahead of a likely Bank of Japan interest rate hike next week as the Nikkei fell. Elsewhere in Asia, GDP for 2024 reached the 5% target set by the Chinese government, helping lead to solid gains in the Shanghai Composite and Hang Seng. Dollar-based investors in the MSCI EAFE and MSCI Emerging Markets Indexes experienced respectable gains but also underperformed the main U.S. equity benchmarks.
Fixed Income, Currency, and Commodity Markets
Fixed Income: The Bloomberg Aggregate Bond Index was higher on the week after a roughly in-line CPI report and slightly dovish commentary from Fed officials caused markets to price in the prospects of multiple rate cuts in 2025. Market pricing had all but priced out multiple rate cut probabilities in the new year, but this week’s data suggests there is now a coin-flip chance of two rate cuts this year. The Treasury yield curve flattened during the week, with 5-year through 10-year Treasury yields falling the most. Corporate credit spreads, both high grade and high yield, were lower during the week, with the lowest-rated cohort (CCCs) tightening the most. Credit spreads remain at or near secular tights.
Since the September 2024 low in Treasury yields, the 10-year yield is higher by 1.0% and the 2Y/10Y curve spread has steepened to 0.34% (meaning the 10-year is now higher than the 2-year by 0.34%). Reasons behind the move are plentiful, with more resilient economic growth, concerns about inflation, and Treasury supply/demand dynamics all reasons why Treasury yields are higher (see the recent Street View video for more details). But breaking out the individual drivers of Treasury securities, the move higher in yields has been largely a function of higher term premium and better economic growth. Inflation concerns have only contributed around 0.30% of the move higher in yields, with an increase on the term premium (~0.35%) and better economic growth (~0.35%) the larger reasons for the recent bond selloff. Moreover, corporate credit spreads, or the additional compensation investors demand to own riskier bonds, have remained close to secular tights, unlike during 2022 when spreads widened on the back of higher inflationary pressures. The takeaway? Bond markets, so far, are not overly concerned about a reacceleration of inflation, so investors, particularly those that can buy bonds and hold to maturity, may want to look to Treasury Inflation-Protected Securities (TIPS) as a way to hedge against unexpected inflation shocks in the future.
Commodities and Currencies: Commodities advanced this week amid widespread buying pressure. The Bloomberg Commodity Index rose 1.5% and topped resistance off the October highs. Energy led gains within the complex as crude oil and natural gas continued to advance. West Texas Intermediate (WTI) crude oil climbed over 2% and notched its fourth straight weekly gain. The announcement of stricter sanctions on Russian oil exports, colder weather, and dwindling stockpile levels in the U.S. contributed to the upward momentum in oil. In metals, the industrials space outperformed with aluminum rallying 5% and leading the way. Copper added 1% and cleared its 200-day moving average for the first time in two months. Gold rose nearly 1% and outperformed within the precious metals space. A minor pullback in the U.S. Dollar Index provided a macro tailwind that was amplified by a drop in interest rates.
Economic Weekly Roundup
Retail Sales Revised Higher. Retail sales in December rose 0.4% from a month ago after an upwardly revised 0.8% monthly sales rate in November. Consumers exhibit solid momentum exiting 2024 as incomes remain supportive of current spending patterns. However, the new car market appears to be slowing. Auto sales in December were much softer than in November, so we should expect more dealer incentives in the new year. Building material sales shrank for the third consecutive month and are now down roughly 1% from a year ago as renovation activity has slowed. E-commerce continues to show steady growth relative to department store sales, revealing a price-conscious consumer.
Consumer spending supported the overall economy last quarter, and we expect Q4 annualized growth to decelerate to 2.5% after growing 3.1% annualized in Q3. In a separate report Thursday morning, import prices excluding energy rose 0.2% month to month, giving the markets an opportunity to breathe a sigh of relief as recent inflation fears were probably overblown.
Mostly Energy Inflation. The rise in energy prices accounted for over 40 percent of the monthly increase in headline inflation in December. Annual inflation accelerated up to 2.9% in December from higher energy and food prices. Stripping out food and energy, core inflation rose 0.2% from a month ago, less than expected and bringing annual core inflation down to 3.2%. Airfares rose 3.9% in December, perhaps playing some catch-up from the minimal rise in November. We know from TSA throughput data that demand for travel is still very high, putting upward pressure on travel costs. Medical care prices are softening, and prescription drug prices were unchanged in December. In a separate release Wednesday morning, manufacturers in the New York region reported a sharp increase in prices paid so far in this month of January.
The acceleration in December consumer prices will likely force investors to wait until the second quarter for the next cut in rates. If enough households remain on solid financial footing, the economy will continue to grow and keep inflation pressures elevated.
The Week Ahead
The following economic data is slated for the week ahead:
Monday: Martin Luther King, Jr. Day Holiday; no economic releases scheduled
Tuesday: Philadelphia Fed Non-Manufacturing Activity (Jan)
Wednesday: MBA Mortgage Applications (Jan 17), Leading Index (Dec)
Thursday: Initial Jobless Claims (Jan 18), Continuing Claims (Jan 11), Kansas City Fed Manufacturing Activity (Jan)
Friday: S&P Global U.S. Manufacturing, Services, and Composite PMIs (Jan preliminary), University of Michigan Consumer Sentiment Report (Jan final), Existing Home Sales (Dec), Kansas City Fed Services Activity (Jan)
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