Welcome back to The Market Mosaic!
I hope you were able to enjoy some time off during the holidays, visit with family and friends, as well as recharge your batteries for a big year ahead!
I traveled to Florida recently to visit with family. I’m getting settled back in, and haven’t found the time to put my usual Sunday post together.
But I believe there are important stock market developments happening over the past week that sets up a bullish start to 2025.
So today, I want to share several charts that I’m monitoring.
After that, I’m posting a link to my 2025 outlook video. It contains several catalysts I’m watching for the year ahead, along with a breakdown of one key sector that could signal the economic and stock market outlook are in jeopardy.
Best wishes for a prosperous year ahead…time to get to work!
A Bullish Start to 2025?
Santa Claus failed to show up for the S&P 500.
The final five trading days of the prior year and first two of the New Year mark the period. Following a promising start, the S&P 500 pulled back and ultimately finished down 0.50%.
That followed a historically weak December for the average stock. The chart below shows the percent of constituents in the S&P 500 outperforming the index over a rolling 21-day period. At the end of December, only 14.7% of S&P members were outperforming the index. That figure is just shy of the record low going back almost a century.
Chart from Dean Christians on X
But the Santa Claus rally wasn’t a complete bust. While the average stock struggled last month, there are positive signs as we start 2025. Small-cap stocks delivered gains of over 1.0% during the Santa Claus period as you can see in the style box table below. That shows an important character change in the average stock as the New Year began.
Chart from Sonu Varghese on X
That’s helping driving several positive breadth divergences across the stock market. The chart below shows the percentage of stock across major exchanges trading above their 20-day moving average. After hitting one of the most oversold levels since this cyclical bull market started back in October 2022, the average stock is starting to lead the S&P 500.
You can see in the chart that the percent of stocks in short-term uptrends is quickly rising even as the S&P 500 bounces around the lows made over the past month (higher low shown with the dashed line). Other breadth metrics are strengthening as well.
The chart below shows the McClellan Oscillator for the NYSE. The oscillator is calculated by taking a trailing difference of advancing versus declining stocks on the NYSE. The green circles show a large positive divergence that happened at the end of December, which is another indicator of improving performance in the average stock. The oscillator is also back above zero for the first time since early December.
What makes improving breadth especially notable is the prevalence of negative investor sentiment. CNN’s Fear & Greed Index dropped into “extreme fear” territory at the end of December, and still points to widespread investor fear. I also like to track the National Association of Active Investment Managers (NAAIM) exposure index. It shows how professional investors are positioning their portfolios. Active managers reduced their equity exposure to near the lowest levels of the past year (chart below).
Positive breadth divergences coupled with negative investor sentiment are powerful ingredients to fuel a rally. That’s why I believe 2025 could experience a bullish start to the year.
A Year of Transitions
We’re coming off an exceptionally strong year for investors, confirming my consistently bullish bias.
With 2024 complete, the S&P 500 gained 23%. Gold is up 26%, while Bitcoin gained 114%.
Crypto’s resurgence and the rapid expansion of artificial intelligence were big investor themes. Nvidia (NVDA) soared 178% to a $3.4 trillion market valuation. Bitcoin proxy MicroStrategy (MSTR) surged by 322%.
But there are reasons why I believe 2025 could hold even bigger and better opportunities in store…and with bigger risks along the way.
The economic picture remains strong for now, which can support the corporate earnings outlook and fuel more stock market gains over the coming year.
But there are growing risks ahead.
The federal debt level has swollen by $2.3 trillion just over the past year. Is this the year that investors finally care and revolt?
The 10-year Treasury yield is up 91 basis points to 4.59% since the Federal Reserve started cutting interest rates. Industries sensitive to higher long-term interest rates are showing signs of feeling the pinch.
There are also emerging signs of inflation’s resurgence. And that’s before promised tariffs hit next year.
I believe that 2025 will be defined by transitions. Dormant asset classes that went into hibernation a couple of years ago will be wakened by a shifting macroeconomic landscape.
If you don’t understand the transitions underway, then your portfolio is at risk of underperforming (or something worse).
How to Win in 2025
My 2025 outlook video is just a small sample of the key themes to watch heading into the New Year and what I believe is in store.
There are way more charts and topics than I can cover here today.
But as you should’ve come to expect by now, I’ll show up for you every week with The Market Mosaic.
Every Sunday, I’ll break down the catalysts impacting the economy and what it means for the stock market. I’ll keep showing you how to utilize breadth, sentiment, and other market technicals to gain an edge in predicting the market’s next move.
And if you’re ready for deeper market insights along with trade ideas to capitalize on opportunities, then be sure to check out my paid membership with the Traders Hub.
But the Hub is way more than just trade alerts.
My focus is on educating, including how to evaluate trade setups and create “asymmetry” by skewing return versus risk in your favor.
Understanding asymmetry will be the key to navigating the stock market over the next year. You do that by limiting the risk on your positions while being able to ride a trend.
Asymmetry is how to win in 2025.
If you’re interested in learning how we create asymmetry at the Hub, you can start a 7-day free trial using this link.
That’s all for today!
Disclaimer: these are not recommendations and just my thoughts and opinions…do your own due diligence! I may hold a position in the securities mentioned in this report.
2025 can see a bullish start to the year. was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.