Last week, thanks to the outcome of the U.S. Presidential elections, the S&P 500 (SPY) touched over 6,010 before closing at 5995.5. In volatile trade on Monday, the S&P 500 closed at 6,001.35. The widely held index benefited from the Federal Reserve’s decision to cut rates by 25 bps.
What happens next for the index will depend on the stock market’s sentiment. If Republics retain their lead in the House of Representatives, the party and the President may enact legislative plans with ease. If corporate taxes fall and deregulation rises, stock markets should continue to rise. Corporate profits rise in that scenario.
The technology sector has the best profit growth prospects in 2025. For the week, Nvidia (NVDA) and Broadcom (AVGO) both gained 9%, while Tesla (TSLA) added 29%.
UnitedHealth (UNH) bounced back, gaining 8.5%. The Magnificent 7 stocks also rose last week. Amazon (AMZN), Microsoft (MSFT), Alphabet (GOOG), and Meta Platforms (META) all have a good chance of trading at all-time highs in the next year.
Although Pfizer (PFE) lost 4.88% in the week, the drug manufacturing sector should perform well next year. Deregulation should help drug companies release new products to the market sooner.
Risks
The benchmark 10-year U.S. Treasury note yield is still at elevated levels. It is pricing in expectations of the Fed slowing its rate cuts. Tariffs on imports would increase the price of goods, fueling inflation. The Fed has a mandate to achieve a 2.0% inflation rate.
Your Takeaway
Wait for Treasury yields to rise to 5%. At that level, bonds are attractive again.