Market Minute – January 3, 2025

Happy New Year! 

Major Index Performances (as of Thursday): 

• S&P 500: The benchmark index dropped (-1.7%) 

• Dow Jones Industrial Average: The Dow fell (-1.39%) 

• Nasdaq Composite: The index is down (- 2.39%) 

• Gold: The Precious metal is up 1.4% 

January Barometer: The correlation between the market’s performance in January and the rest of the year is often referred to the “January Barometer”. It’s a simple concept that supposedly foretell show the market will perform for the rest of the year. It’s a concept you hope is correct 100% of the time when the market is up in January and 100% wrong when the market is down. How accurate is this called forecasting tool? Well, it’s true 75% of the time when the market is up in January. However, when the market is down in the first month of the year, it finishes lower for the year 60% of the time. 

In recent months I have discussed market phenomenon’s like “sell in May and go away” “The Santa Clause Rally” and the “January Barometer”. So, what effects do these phenomena’s have on the way we manage our portfolios? Absolutely nothing. As James Carville quoted in 1992, “It’s the economy stupid” 

Economy 2025: Heading into 2025 the U.S. economy is showing some signs of resilience and stability, but there are several uncertainties to watch. The economy is expected to grow at a very moderate pace. Gross Domestic Product, GDP, is expected to expand at 2.1%, below the 20-year average. Inflation continues to remain sticky, and we would not be surprised to see it rise in 2025. Heading into the new year, unemployment remains relatively low, however it has been rising in recent months. If this trend gains strength, it will impact consumer spending, and that could reduce GDP. 

Last week we listed several reasons why we are cautious on stocks and this week we are making several changes to our strategies in preparation for some bumps during the first two quarters of 2025. At this point, we are reducing our exposure to Gold following its spectacular run in 2024 where it reached all-time highs. In recent months Gold has been highly correlated to the dollar, something that we consider unusual. Historically, Gold has moves in the opposite direction of currency. This time around, however, Gold has been hot commodity around the globe, likely due to growing fears of a U.S. Dollar collapse under the weight of reckless spending and runaway debt. Despite this backdrop, we expect the dollar to strengthen (in the short-term) and that gives us conviction to lower our exposure to the shiny metal and capture some gains. In line with lowering our exposure to Gold, we are closing our positioning Silver, SLVR.  

In our covered call strategies, we will begin utilizing weekly options, when available, and lowering our strike prices to increase cash flow. This change will potentially reduce appreciation, but we feel this is appropriate for income seeking investors.  

We will remain overweighted in the money market.  The 10-year treasury rate has been on a continuous climb, currently sitting at 4.60%. We believe that rate could reach 5%, offering an attractive long-term holding. Unfortunately, if the 10-year gets to 5%, investors just might begin shifting capital from stocks to treasuries. Should this happen, a stock market correction may not be out of the question.  

As mentioned, many times, active money management is an attempt to take advantage of the everchanging conditions around the world. Monitoring the economy, the stock market, and interest rates can help us make informed decisions as we try to manage risk.   Though the indexes had impressive returns in 2023 and 2024, lest we forget the 23% decline in 2022. Remember, it’s not what you make, it’s what you keep, and that’s why we choose active over passive management.  

Have a wonderful weekend.  

Your OmniStar investment team