5 Important events to watch as we begin 2025 from Investing.com

Investing.com – As we enter 2025, markets are navigating a delicate balance between optimism and caution.

Last year saw notable gains, posting its best two-year performance since the late 1990s.

Federal Reserve rate cuts, a soft landing for the economy, and the relentless momentum of AI-led growth created a backdrop of economic stability and investor confidence.

But as the Sevens Report analysts point out, the year ahead begins with high expectations, and the stakes are higher than ever.

A handful of critical events in January will determine whether the optimism of 2024 leads or leaves disappointment.

The first key test comes almost immediately with the election of the Speaker of the House on January 3.

This event, while political in nature, has economic and market implications. It will be a litmus test for Republican unity and their ability to pass pro-growth measures.

President-elect Donald Trump’s endorsement of Speaker Johnson boosted the stock, with investors watching closely for signs of a cohesive Republican majority.

A quick and drama-free election could boost market confidence in legislative efficiency. On the other hand, a prolonged or disputed process would signal fractures in the party, raising doubts about its ability to implement its agenda.

The labor market will take center stage just one week later with the release of the January employment report on January 10. Labor market data has consistently shaped investor sentiment, and this report is no exception.

Markets walk a fine line: a weak report could raise fears of an economic slowdown, reminiscent of the fear of growth that rocked markets last August.

Conversely, an unexpectedly strong jobs number could reduce expectations for further Federal Reserve rate cuts, pushing Treasury yields higher and potentially weighing on stocks.

The ideal outcome for markets would be a “Goldilocks” scenario – moderate job growth that keeps growth fears and inflationary pressures at bay.

The corporate earnings season begins on January 13, and may be the most consequential earnings period in years. After a blockbuster 2024 powered by technology and AI companies, the market is banking on continued earnings power to justify high valuations.

Consensus estimates for 2025 earnings growth are ambitious, at around 15%, more than double the historical average. This optimism has set a high bar for companies to clear, especially for large technological companies such as the so-called “Mag 7”.

If corporate earnings fall short of expectations or if guidance suggests a slowdown, markets could face renewed volatility as concerns about valuation sustainability resurface.

Inflation data will follow closely, with the release of the Consumer Price Index (CPI) on January 15. Inflation, which has largely rebounded in 2024, has shown signs of rebounding slightly, prompting the Federal Reserve to moderate its guidance on further rate cuts in 2025. .

The January CPI report will be pivotal in shaping inflation expectations for the year ahead. A lower-than-expected reading is likely to rekindle hopes for additional monetary easing, providing a tailwind for markets.

However, a warmer-than-expected report will reinforce fears of lingering inflation, pushing Treasury yields higher and potentially derailing the equity rally.

Finally, the month will culminate in the Federal Reserve policy meeting on January 29. While no rate hikes have been announced this time around, the tone of the meeting will be critical. The market’s optimism depends on the Fed maintaining its dovish position, even if only incrementally.

Any suggestion that the Fed may pause its rate-cutting cycle would be seen as a significant negative, potentially undermining the foundation of the bull market.

Investors will be closely scrutinizing the Fed’s language for clues about its commitment to sustaining economic growth through 2025.

As January unfolds, the markets are at a crossroads. The foundation of strong earnings, the moderation of inflation and the support of the Fed remains intact, but expectations are high, leaving little room for error.

Sevens Report analysts note that the first events of 2025 will set the tone for the rest of the year.

A smooth start could restart the 2024 rally, while missteps could amplify the pullback seen in late December.