S&P 500 Investors Focus on 2025-Q4 as Expectations Grow for Second 2025 Rate Cut

The S&P 500 (Index: SPX) touched a new record high during the Martin Luthor King Jr. holiday-shortened trading week.

It hit that high on Thursday, 23 January 2025 as it closed at 6,118.71, before reteating to end the week at 6,101.24. The index was up 1.74% over its previous week’s close.

The driving factor behind that change is increasing expectations of a second rate cut later in 2025. The CME Group’s FedWatch Tool gives a greater than 75% probability the Fed will act to cut interest rates by a quarter point on 18 June (2025-Q2), but more significantly, it now indicates a greater than 50% probability of another quarter point rate cut on 10 December (2025-Q4).

The latest update of the alternative futures chart the trajectory of the S&P 500 is now consistent with investors focusing their forward-looking attention on that distant future quarter.

Unlike most holiday-shortened weeks, the trading week ending Friday, 24 January 2025 was packed with market-moving headlines.

Tuesday, 21 January 2025

• Signs and portents for the U.S. economy:

• Oil falls as Trump’s plan to boost US oil output takes shape
• No day-one tariffs from Trump, but he says Canada, Mexico may get duties Feb 1

Fed minions drops Biden-driven green initiative, are expected by one investment house to deliver more than one rate cut in 2025:

• Central banks’ green push hits a hurdle as Fed drops out
• Guggenheim expects Fed to cut rates about every quarter in 2025

Bigger trouble, stimulus developing in China:

• ‘We’ve impeded China’: departing official defends US export controls
• China’s frugal young adults accelerate saving, raising economic risks
• China enters ‘new normal’ for luxury market with flat sales expected in 2025, report says
• China leaves benchmark lending rates unchanged
• China’s crude oil imports from top supplier Russia reach new high in 2024

BOJ minions gearing up to hike Japan’s interest rates:

• Bank of Japan poised to raise rates to highest in 17 years

ECB minions expected to deliver more interest rate cuts in Eurozone:

• Easing tariff fears cement bets on ECB rate cut next week

Dow ends up 1%, S&P, Nasdaq rise on liftoff of Trump 2.0 trading era

• Wall St edges higher with focus on President Trump’s trade policy
• Apple slump steers Nvidia to reclaim spot as most-valuable company

Wednesday, 22 January 2025

• Signs and portents for the U.S. economy:

• Oil eases to one-week low amid Trump tariff uncertainty

BOJ minions see wage inflation in Japan:

• Japan wage growth gathers steam as reluctant retailers raise pay

S&P just misses out on record close, Nasdaq ends +1% on Netflix, AI trade boost

• Netflix shares hit record as subscriber growth defies odds once again

Thursday, 23 January 2025

• Signs and portents for the U.S. economy:

• Oil falls as Trump urges OPEC to lower prices

• Oil prices held down by Trump tariff uncertainty

Trump tells Davos he will demand lower interest rates, oil prices

Trump to global firms: Manufacture in USA or face tariffs

Fed minions get encouragement for rate cuts from Trump administration

• Trump targets Fed and calls for lower interest rates

China’s government starts shaking out couch cushions to develop bigger stimulus:

• China prods insurers to invest billions in latest move to support markets

BOJ minions get better economic news, think they need to start getting ahead of rising inflation in Japan with rate hikes:

• Japan December export growth beats forecast amid tariff jitters

• Japan exports rise 2.8% in Dec, beat forecasts

BOJ likely to raise rates to highest in 17 years, signal more hikes

ECB minions expected to deliver another interest rate cut for the Eurozone, aren’t worried about inflation:

• ECB policymakers line up behind rate cuts
• ECB’s Villeroy: Trump policies unlikely to have much impact on euro inflation

S&P ends at record high, Dow up as Trump pushes for lower oil, rates

• S&P 500 notches closing record with focus on Trump comments, earnings

Friday, 24 January 2025

• Signs and portents for the U.S. economy:

• Oil prices set for weekly drop as Trump touts energy policy, threatens tariffs

• Trump once again calls for OPEC to drop oil prices
• US oil and gas rig count falls to lowest since Dec 2021, Baker Hughes says

US existing home sales rise in December; house prices hit record high in 2024

Fed minions expected to hold Federal Funds Rate steady this month:

• Fed to hold rates steady at an unsteady moment
• A Fed on hold, for now, eyes strong jobs, easing inflation

Growth signs developing in China as stimulus gets results:

• China stimulus scheme lifted 2024 consumption growth by 1 pct point
• POLL China Jan manufacturing activity seen expanding for fourth month
• Dividend surge signals culture shift in China’s markets

BOJ minions raise Japan’s base interest rate to 0.5% to combat Japan’s rising inflation:

• Bank of Japan raises rates to highest level in 17 years
• Japan hikes rates to highest since 2008 as sustained inflation, rising wages signal ‘virtuous cycle’ in play

• Japan’s core inflation hits 16-month high, markets brace for BOJ hike
• Japan factory activity sinks to lowest level in 10 months, PMI shows

Germany pauses dragging Eurozone economy down:

• Euro zone businesses start year with modest return to growth, PMI shows
• German business activity stabilises in January, PMI shows

S&P ends below record high; stocks score winning week before Fed’s first 2025 meeting

• Wall St slips with mixed data and earnings ahead of Fed week

The Atlanta Fed’s GDPNow tool‘s final projection of real GDP growth rate for the now-past quarter of 2024-Q4 is unchanged from the previous week’s +3.0% annualized growth estimate. With the BEA’s upcoming first estimate of GDP in 2024-Q4 release on 30 January 2024, the GDPNow tool’s next forecast will be for real GDP in the first quarter of 2025.

Image credit: Stable Diffusion Dreamstudio Beta. Prompt: “An editorial cartoon of a blindfolded Federal Reserve official who is throwing darts at calendars. One dart is sticking out of the calendar that says ‘DEC-2025′.”