WEEK IN PERSPECTIVE: Week ending January 2, 2025.

Stocks Drift Lower in Quiet Holiday Week as Markets Search for Direction

The U.S. equity market ended the holiday‑shortened week on a subdued note, with light trading activity and a lack of meaningful catalysts leaving major indexes drifting lower. The muted tone erased much of the prior week’s advance and resulted in an effectively nonexistent Santa Claus rally, as investors entered 2026 still waiting for a clearer directional signal.

Major Indexes Slip Amid Low Conviction Trading

The S&P 500 fell 1.0% for the week, while the Nasdaq Composite declined 1.5% and the Dow Jones Industrial Average slipped 0.7%. Pressure in several mega‑cap names weighed on the broader market, contributing to the soft tone across major benchmarks.

Small- and mid-cap stocks continued to lag. The Russell 2000 dropped 1.1%, and the S&P Mid Cap 400 finished 0.7% lower, extending last week’s underperformance.

Weakness in mega‑cap growth stocks remained a defining theme. The Vanguard Mega Cap Growth ETF slid 1.9% for the week, trailing the broader market and limiting any potential upside despite isolated areas of strength.

Sector Performance Mixed as Rotation Continues

Sector action was uneven, reflecting ongoing rotation beneath the surface.

• Information technology stocks fell 1.5% as large-cap AI and software names consolidated.

• Chipmakers, however, showed renewed momentum late in the week. A strong Friday rally pushed the PHLX Semiconductor ETF up 2.2% for the week, helping stabilize sentiment within the broader tech complex.

• Consumer discretionary was the weakest sector, dropping 3.2% amid persistent selling in several heavyweight components.

• Financials also lagged, declining 1.3%.

In contrast, energy stood out as the clear outperformer. The sector gained 3.3% for the week, supported by firm oil prices and heightened geopolitical tensions. Industrials (+0.5%) and utilities (+0.9%) also finished higher, offering relative stability during an otherwise soft week for equities.

Light Volume Limits Market Conviction

Trading volume was notably thin throughout the week due to the holiday calendar, dampening conviction behind both rallies and pullbacks. With last week’s gains largely retraced and no major macroeconomic or policy developments shifting expectations, markets ended the week still searching for their next catalyst as the new year begins.

Weekly Index Performance

• DJIA: -0.7%

• S&P 500: -1.0%

• Nasdaq Composite: -1.5%

• Russell 2000: -1.1%

• S&P Mid Cap 400: -0.7%

Future Market Outlook

The market enters 2026 without a clear directional driver, but several potential catalysts are on the horizon. Earnings season, Fed communication, and economic data will likely determine whether stocks regain upward momentum or continue to drift. Until then, expect volatility, rotation, and a market that reacts sharply to any new information.

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