Market data shows that retail and foreign investors are entering the US stock market at unprecedented levels, as revealed by The Kobeissi letter. The “optimistic” investor approach has driven the S&P 500 up approximately 5% in the past seven days, culminating in its first all-time high of 2025.
In a thread posted on January 24, Global Capital Markets commentator The Kobeissi letter denoted that retail investors alone purchased $7.8 billion worth of US stocks this business week, marking the largest single-week influx since November 2023.
The spike follows two consecutive years without the annual period of market gains at year-end. Market analysts have dubbed it the Santa Claus rally, which has only been broken three times in history.
The S&P 500 has risen ~5% over the last 7 days and hit an all-time high for the first time this year.
— The Kobeissi Letter (@KobeissiLetter) January 24, 2025
This comes after back-to-back annual losses in the "Santa Claus" rally for the 3rd time in history.
Recent buying is +2.3 standard deviations above the last 12-month average. pic.twitter.com/gfX2Q9C68L
The market analysts asserted that the current buying sentiment has gone 2.3 standard deviations above the 12-month average, which means that investors are confident US equities will come good this year.
Foreign investors flock US stock market, rate cuts cause upticks
Per the Kobeissi Letter, foreign investors have purchased a record $76.5 billion in US equities since October 2024. This figure surpasses the previous high of 2021 by nearly $25 billion, likely fueled by the year-end S&P 500 surge, which propelled the market to a 23% uptick in the whole of 2024, according to CNBC.
Foreign investors have acquired over 50% more US shares in the same period and currently have an average investment exposure of 60% to US stocks.
Analysts have also noted that the Federal Reserve’s decision to cut interest rates in September 2024 also caused a market uptrend. Since the cuts began, the S&P 500 has risen by 8%, aligning with historical trends when rate reductions occur without a subsequent recession.
The question becomes, can the US economy avoid a recession into 2026?
— The Kobeissi Letter (@KobeissiLetter) January 24, 2025
Back to this chart, we can see equity performance is much worse if the economy enters a recession after cuts begun.
During recessions, the S&P 500 sees an -11% average decline 24 months after cuts begin. pic.twitter.com/ZxZBFMJj99
Historically, the index has rallied an average of 50% within two years after rate cuts, except in the cases where the country experienced a recession, which is 14 times since the early 1930s. As explained by the Kobeissi Letter, during recessions, the S&P 500 tends to decline by an average of 11% in the 24 months following rate cuts.
Will the US suffer a recession in 2025?
Economists surveyed by The Wall Street Journal believe the US will not experience a recession this year. The market experts, both from business and academic backgrounds, lowered their recession predictions to 39% from 48% in the October 2024 survey.
“A recession in the year ahead seems less likely than it appeared at the start of 2023, since interest rates are trending lower, gas prices are down from last year, and incomes are growing faster than inflation,” Bill Adams, chief economist at Comerica Bank, told WSJ.
Meanwhile, Technology stocks continue to dominate the equities market, with the Information Technology sector accounting for 35% of the US stock market. This level surpasses the 33% peak reached during the Dot-Com Bubble of 2000.
Global equities react to US policy
On January 23, global stocks saw mixed results amid lingering uncertainties over US trade policy and President Trump’s proposed tariffs. According to a Reuters report, European markets, including the STOXX 600, fell slightly after hitting record highs earlier in the week.
The decline was driven by a drop in technology shares, which had rallied following President Trump’s announcement of a $500 billion private-sector investment in artificial intelligence infrastructure.
While initial excitement surrounding Trump’s AI initiative boosted markets, the absence of further details on trade tariffs thwarted the upward momentum.
Michael Brown, senior research strategist at Pepperstone, adds that equity markets could remain strong despite tariff-related uncertainties.
“Clearly, the path of least resistance continues to lead to the upside in the equity space, with participants ably shrugging off tariff-related uncertainties for now,” Brown adduced.
On the Asian markets, Chinese stocks rallied by over 1% during the early Thursday trading session before paring gains with the CSI300 index, closing the day 0.18% higher.
The rally followed Chinese government announcements of plans to channel hundreds of billions of yuan from state-owned insurers into equities. However, concerns over US tariffs on Chinese imports, announced alongside Trump’s trade policies, have made the renminbi’s value against the US dollar lacklustre.
In Japan, the Nikkei 225 rose 0.8%, and investment giant SoftBank Group’s shares edged a 5% price uptick. As President Trump announced last Monday, the Japanese conglomerate has partnered with OpenAI to co-fund the Stargate AI initiative, a $19 billion joint venture.
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