Unexpectedly Intriguing!
27 January 2025
An editorial cartoon of a blindfolded Federal Reserve official who is throwing darts at calendars. One dart is sticking out of the calendar that says 'DEC-2025'. Image generated with Stable Diffusion DreamStudio Beta.

The S&P 500 (Index: SPX) touched a new record high during the Martin Luthor King Jr. holiday-shortened trading week.

It hit that high on Thursday, 23 January 2025 as it closed at 6,118.71, before reteating to end the week at 6,101.24. The index was up 1.74% over its previous week's close.

The driving factor behind that change is increasing expectations of a second rate cut later in 2025. The CME Group's FedWatch Tool gives a greater than 75% probability the Fed will act to cut interest rates by a quarter point on 18 June (2025-Q2), but more significantly, it now indicates a greater than 50% probability of another quarter point rate cut on 10 December (2025-Q4).

The latest update of the alternative futures chart the trajectory of the S&P 500 is now consistent with investors focusing their forward-looking attention on that distant future quarter.

Alternative Futures - S&P 500 - 2025Q1 - Standard Model (m=+1.5 from 9 March 2023) - Snapshot on 24 Jan 2025

Unlike most holiday-shortened weeks, the trading week ending Friday, 24 January 2025 was packed with market-moving headlines.

Tuesday, 21 January 2025
Wednesday, 22 January 2025
Thursday, 23 January 2025
Friday, 24 January 2025

The Atlanta Fed's GDPNow tool's final projection of real GDP growth rate for the now-past quarter of 2024-Q4 is unchanged from the previous week's +3.0% annualized growth estimate. With the BEA's upcoming first estimate of GDP in 2024-Q4 release on 30 January 2024, the GDPNow tool's next forecast will be for real GDP in the first quarter of 2025.

Image credit: Stable Diffusion Dreamstudio Beta. Prompt: "An editorial cartoon of a blindfolded Federal Reserve official who is throwing darts at calendars. One dart is sticking out of the calendar that says 'DEC-2025'."

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