Market Outlook

Happy New Year everyone!

We have taken some well-earned time off from publishing new content in the last couple of weeks. Instead, we re-published some of our most popular – and still relevant – stories from 2024.

Well – we are back and ready to kick off a New Year…

Today, we want to briefly touch on our current stock market outlook.

December was challenging for the stock market indices and even more so for most individual investors.

The major indices ended up down between -0.5% (the NASDAQ Composite) and -5.3% (the Dow Jones Industrial). The S&P 500 finished up right in the middle, down -2.5% for the month.

These are not terrible returns, especially in a strong overall year, but the average stock was down much more. The major indices (which are capitalization-weighted) were helped by the performance of the biggest stocks.

The equal weight S&P 500 (SPW) was -6.4%, while the equal weight NASDAQ (QQQE) was -5.1%.

This meant that most investors felt a lot more pain in their holdings.

Given the weak close for the year, where do we stand for 2025?

Surprisingly, a weak December and a failure to rally over the "Santa Claus" rally period (encompassing the last five trading days of the previous year and the first 2 days of the following year) doesn't statistically indicate much about the coming year.

Regardless of the season, though, we always start by looking at the chart of the S&P 500 versus the moving averages to begin our stock market assessment.

Here is a market-cap weighted S&P 500 chart along with the 50-day, 100-day and 200-day moving averages…

As ugly as it might have been for the last month, this is a chart that is still solidly in a BULL market trend. It has held the 50-day moving averages and is still not very far from the all-time high hit just a couple of weeks ago.

Now let's look at the same chart for the equal-weighted S&P 500…

This chart has breached the 50-day and 100-day moving averages and is now consolidating near that 100-day moving average.

Arguably, this chart is not as good, but it is still very good.

Note that this index has also come off a recent high. While it has breached that 100-day moving average, it is hovering near it and has not yet touched the 200-day moving average.

One perspective could be that the strength in the largest capitalization stocks has held up the overall indices and “masked” weakness in the overall stock market. It could be a precursor to much broader weakness.

Another perspective could be that the equal weight index held on and is amid a continued uptrend. The fact that it has not broken down is a positive.

Which is it?

We don't honestly know, but we will stick with the old (and very successful) adage, "The trend is your friend."

Both indices are in well-established uptrends, holding above their longer-term (200-day) moving averages. Both are coming off recent all-time highs just weeks ago. The much more widely followed market-cap weighted S&P 500 is actually an awesome chart.

Until something changes in these dynamics, we believe we are still in a BULL market and will trade accordingly.

What would change our mind?

Those relationships to the moving averages. BEAR markets start when indices are trading below all three moving averages and stay below them.

Considering that neither index has come close to touching the 200-day moving average, we don’t think anything has changed.

Until it does, we think you continue to buy the dip!

Here is to a great 2025 and successful trading…