Market Update – January 12th, 2025

Sound Planning Group Team

Financial Markets

The week began with heightened geopolitical pressure following the U.S. capture of the Venezuelan president. As the week progressed, geopolitical tensions generally eased, helping stabilize market sentiment. On the economic front, the unemployment rate edged lower, though job gains came in weaker than expected. Against this backdrop, the first full trading week of the new year brought modest gains, with the S&P 500 rising 0.93%, the Dow Jones Industrial Average up 1.08%, and the Nasdaq Composite gaining 1.18%.

Market News

December Jobs Report

December’s labor market data showed the unemployment rate edged lower to 4.4%, pointing to continued moderation without signs of abrupt weakness. Payrolls increased by 50,000 jobs during the month, below consensus estimates, with employment gains concentrated in food services and drinking places, health care, and social assistance, while retail trade continued to shed jobs.

Federal government employment was little changed in December, rising by 2,000, though the broader trend over the year has been one of meaningful contraction. Since peaking in January, federal government employment has declined by 277,000, around 9.2%, with employees on paid leave or receiving severance still counted as employed in the data, which likely leaves current federal employment levels somewhat overstated.

On a full year basis, payroll employment increased by 584,000 in 2025, averaging 49,000 new jobs per month, a notable deceleration from the 2.0 million jobs added in 2024, or an average of 168,000 per month.

Wage growth remained a stabilizing force, with average hourly earnings rising 3.8% year over year, continuing to outpace inflation and support real wage gains. As a whole, the data suggests the labor market has been cooling at a measured pace, consistent with a stable economic backdrop and little evidence of sudden deterioration.

Source: Bureau of Labor Statistics

Consumer Sentiment

Consumer sentiment improved modestly in January, rising 2.1% for the month, supported largely by stronger current expectations. This small improvement stands in contrast to the broader trend, as sentiment remains down nearly 25% from a year ago, even though this month’s reading was the highest since September, reflecting a small jump in renewed optimism as we begin the new year. Survey responses indicate that consumers continue to focus on kitchen table issues, including high prices and a softening labor market.

Source: The University of Michigan

ISM Manufacturing

The ISM Manufacturing Index moved further into contractionary territory in December, falling to 47.9%, as modest declines in production and inventories weighed on activity. While new orders and supplier deliveries showed slight improvement from November, these gains were not sufficient to offset weakness in other components, leaving manufacturing as a continued soft spot within the U.S. economy.

Source: Bureau of Economic Analysis

ISM Services

In contrast to manufacturing, the ISM Services Index strengthened in December, rising to 54.4% from November levels. The improvement was driven by stronger business activity, new orders, employment, and an uptick in new export orders, partially offset by lower supplier deliveries and a decline in order backlogs. Overall, the data continue to indicate that the services sector remains the primary of growth for the U.S. economy.

Trade Deficit Improves

The U.S. goods and services trade deficit narrowed to $29.4 billion in October, down $18.8 billion from $48.1 billion in September, marking the lowest level since mid-2009. For the first 10 months of 2025, the deficit remains 7.7% higher than the same period in 2024, largely reflecting an early-year surge in imports ahead of tariffs implemented in April. The latest report highlights how tariffs have been reshaping global trade patterns and gradually nudging the U.S. toward a more deglobalized approach.

Source: US Bureau of Economic Analysis, US Census Bureau

Summary

This week’s economic releases highlighted a moderating yet resilient U.S. economy, supporting equity gains in the first full trading week of the new year. The unemployment rate edged lower while job growth slowed, wage gains continued to outpace inflation, consumer sentiment improved slightly, manufacturing remained in contraction, services continued to lead growth, and the trade deficit narrowed sharply in recent months.

We appreciate your continued trust.

Thank you,

Joseph M. Maas,
CFA, CFP®, ChFC, CLU®, MSFS, CCIM, CVA, ABAR, CM&AA

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