The stock market in the United States witnessed significant gains last year, driven largely by the relentless advancement of artificial intelligence technology and the Federal Reserve's re-opening of its rate cuts, leading to a remarkable double-digit increase across the three major indicesHowever, disappointment loomed over the market at the end of the year as the last trading week ended with a considerable sell-off, marking the second consecutive year where the traditional "Santa Claus rally" failed to materialize.

As we transition into the new year, anticipation surrounds the imminent release of a suite of critical economic data, including non-farm payroll figures from the previous year

Simultaneously, the annual Consumer Electronics Show (CES) is set to commence, raising the question of whether the innovations and new products unveiled by tech giants can reinvigorate the U.Sstock market.

Crucial Data Tests Federal Reserve's Resolve

The first week of the new year presents relatively subdued data releases, with the employment market showing stabilityAccording to the U.S

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Department of Labor, the number of unemployment claims fell by 9,000 after Christmas, reaching a near-eight-month low of 211,000.

Since the fourth quarter of last year, application numbers for jobless benefits in the U.Shave lingered at low levelsIn an environment of steady economic growth, businesses are inclined to retain employees, yet the pace of new hiring continues to slow down, causing prolonged job searches for the unemployedWall Street experts predict that this trend could persist into early 2025.

Bob Schwartz, a senior economist at Oxford Economics, noted in an interview with a financial news outlet that while the labor market has cooled compared to last year, it is characterized more by a slowdown in job growth than by mass layoffs, which should help mitigate any pressure on the unemployment rate

The upcoming non-farm payroll report is expected to be pivotal and could reinforce the Federal Reserve's view that a more cautious approach to rate normalization is warranted.

Interestingly, after an unexpected return to expansion by the Dallas Federal Reserve's manufacturing index, the American Supply Management Institute's manufacturing index also saw an uptick to 49.3% in December, marking a nine-month high, driven by a surge in new orders.

Thomas Simons, an economist at Jeffries, remarked that the outlook for U.Smanufacturing is showing significantly more positive indicators than negative onesRate cuts may slow down, but they are not expected to come to a halt

The new administration is committed to initiatives aimed at enhancing the competitiveness of U.Smanufacturing, which includes deregulation, a more favorable tax environment, and protectionist tariffsWhile the net benefits of tariffs remain uncertain, the other positive forces are evident.

In the long term, the U.Sbond market has exhibited narrow fluctuations, with the benchmark 10-year treasury yield maintaining a near one-year high of 4.60%. According to the FedWatch tool from the Chicago Mercantile Exchange Group, traders currently anticipate that the Federal Reserve will cut rates by approximately 42 basis points this year.

Schwartz further remarked that the rise in long-term treasury yields has sparked widespread concern

This not only impacts mortgage rates within the housing market but also affects consumer confidenceStrong growth in consumer spending was a major driver of GDP expansion in the latter half of last yearNonetheless, recent surveys indicate that people are growing increasingly pessimistic regarding the likelihood of declining rates and the future of the labor market, making it essential to watch how the new administration's policies unfold and how the Federal Reserve responds.

Slowdown in Capital Inflows

The U.S

stock market has begun the new year on a sluggish note, failing to deliver the anticipated "Santa Claus rally," with the three major indices each dipping over 0.5% during the short trading week.

Market segments displayed a mixed trendStatistics from the Dow Jones reported that energy stocks surged by 3.2% benefitting from a rebound in international oil prices, while the materials sector led the decline, down by 2.1%. The discretionary and staple consumer goods sectors also dropped by over 1%. Notable stocks included Tesla, which fell by 4.9% over the weekAlthough the electric vehicle manufacturer reported a year-over-year decline in vehicles delivered for 2024, its sales in the Chinese market reached an all-time highFurthermore, investment bank Evercore ISI raised Tesla's stock price target from $195 to $275.

Peter Andersen, founder of Andersen Capital Management, conveyed, "This is a complex picture

Initially, investors viewed this as a positive outcome last November, as it indicated a friendly market environmentHowever, the primary concern now is whether these decisions will provoke inflation, and if so, does it suggest that the Federal Reserve will abruptly shift course and start increasing rates."

Data indicates a cooling of investor enthusiasmRecent statistics from the London Stock Exchange revealed that in the past week, U.Sstock funds recorded a net inflow of $490 million, although this was a significant drop from the $20.5 billion in buying seen the previous weekIn contrast, money market funds have maintained popularity for the second consecutive week, accruing a net purchase totaling $72.99 billion, the highest in nearly four weeks.

The much-anticipated Consumer Electronics Show (CES 2025), often referred to as the "Spring Festival Gala of Technology," is poised to open

Chip giants such as NVIDIA, Intel, and AMD are expected to unveil a host of new products, with NVIDIA’s stock hovering just 6% shy of its historic peakGoldman Sachs noted in its market outlook report that as more applications materialize, the scope of AI investments is likely to broaden, thus advising investors to keep an eye on businesses generating revenue from artificial intelligence products.

Charles Schwab pointed out in its market forecast that investors are still digesting the relatively hawkish outcomes of December's Federal Open Market Committee meetings along with the uptick in long-term yieldsDespite healthy economic data, there seems to be growing concern about a potential re-emergence of inflation, leading to questioning of the Federal Reserve’s level of dovishness in 2025. While the market may have lost some of the optimism garnered since November, recent adjustments could be viewed as a healthy consolidation period, potentially beneficial in eliminating speculative excess and allowing for the establishment of a more rational foundation for the new year.

Looking ahead, the institution believes that a technical rebound appears to be in effect