As 2025 begins, the stock market is facing some challenges. Yet, several factors suggest that the long-running bull market is likely to persist. Here are five positive signs for U.S. equities:
1. Improved Geopolitical Climate
Recent news indicates a “preliminary” ceasefire agreement has been reached between Israel and Hamas. Since the attack on October 7th, tensions in the Middle East had posed significant risks to the financial markets. Any reduction in these tensions bodes well for stock prices.
2. Anticipation of Federal Reserve Rate Cuts
The new year began with uncertainty about the Federal Reserve’s control over inflation, similar to the start of 2024. However, the recent CPI report has eased many investors’ fears, suggesting that inflation may be “transitory.”
The Consumer Price Index (CPI) showed an annual inflation rate of 2.9%, aligning with expectations, while Core CPI, which excludes food and energy prices, surpassed forecasts.
As a result, traders are now predicting that Jerome Powell and the Federal Reserve will cut interest rates twice in 2025. These rate cuts typically lead to increased market liquidity and rising stock prices.
3. Small-Cap Stocks on the Rise
The Russell 2000 Index ETF (IWM) has rebounded over 3% after finding support at the 40-week moving average, a level that has held firm for more than a year. This renewed interest in small-cap stocks, alongside overlooked companies like KB Home (KBH) and Bank of America (BAC), suggests a healthy market condition.
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4. Potential for Crypto Deregulation
During his tenure, SEC Chair Gary Gensler has implemented strict regulations on the crypto industry. However, with recent political changes, Gensler is set to leave his position.
With a new SEC under President Trump, significant changes are expected to benefit the crypto landscape and companies like Coinbase (COIN). Reports from Reuters indicate that Trump’s SEC plans to “overhaul crypto policy and pause enforcement cases currently in litigation.”
This deregulation may not only favor cryptocurrencies but could also unleash broader market optimism. An example is the SEC’s recent charges against Tesla (TSLA) CEO Elon Musk, which might be dismissed with the shift in administration.
5. Increased New Lows May Signal Recovery
Monitoring the NYSE New High-New Lows helps investors view the market from a broader perspective. Recently, the number of new lows hit a peak not seen in over a year, suggesting a possible bullish washout.
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Bottom Line
Despite some market fluctuations, it’s premature for bullish investors to lose hope. The easing of geopolitical tensions, a controlled inflation outlook, and the recent increase in new lows suggest the bull market is likely to continue in 2025.
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Bank of America Corporation (BAC): Free Stock Analysis Report
KB Home (KBH): Free Stock Analysis Report
Tesla, Inc. (TSLA): Free Stock Analysis Report
iShares Russell 2000 ETF (IWM): ETF Research Reports
Coinbase Global, Inc. (COIN): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
