New Year’s resolutions often revolve around cuts: Cutting back on drinking alcohol, cutting down on spending frivolously, cutting out mindlessly scrolling TikTok one last time before it gets banned.

One kind of cut many investors were looking forward to this year was interest rate cuts. After the Federal Reserve’s final 25 bps cut in December 2024, analysts had accepted the idea that there would probably be fewer rate cuts in 2025.

But hey, that’s a good thing, right? After all, if the economy is humming along—consumer spending is up, the labor market is healthy, GDP continues to rise—then you don’t need rate cuts to help. Last month, everyone on Wall Street agreed with this logic, then turned their attention back to their computers to finish their holiday shopping as stocks continued to rise.

Now, however, investors are back from their winter vacations and beginning to worry about what the future holds.

Paring back predictions

Last week’s blockbuster labor report revealed that the jobs market is strong—so strong, in fact, that Bank of America analysts believe that the Federal Reserve no longer has to cut interest rates at all in 2025.

“The Dec jobs report was gangbusters, with payrolls rising by 256k and the u-rate falling a tenth to 4.1%. Given a resilient labor market, we now think the Fed cutting cycle is over,” US economist Aditya Bhave wrote in a note last Friday. “Economic activity is robust. We see little reason for additional easing.”

Just last month, BofA expected to see two rate cuts in 2025. But in his note, Bhave wrote that interest rate hikes may actually be on the table if year over year core PCE rises above 3%.

To be clear, Bank of America’s opinion is an outlier…for now. Goldman Sachs, JP Morgan, and Morgan Stanley all predict two cuts in 2025, though Goldman and JPM don’t see the first cut coming until June, while Morgan Stanley thinks it will arrive in March. Barclays anticipates just one cut this June, while Citigroup is the most optimistic of the bunch, predicting five cuts—though Citigroup just pushed its first cut back from January all the way to May.

Prediction markets are less hopeful: Bettors on Kalshi upped the chances of zero rate cuts in 2025 from 15% to 25% over the last few days.

How to invest

Rate cuts may no longer be necessary to keep the economy healthy, but they were part of investors’ plans for 2025—and now that those plans are being disrupted by an economy that just won’t quit, investors are beginning to worry, and stocks are selling off.

It doesn’t help that bond yields continue to rise, making fixed income an enticing proposition for investors who want to sell out of stocks and hedge their bets in the new year. Although it’s never a good idea to panic-sell at the first sign of trouble, diversifying into fixed income isn’t a terrible plan, particularly for investors who want to redistribute profits after two straight years of +20% gains for the S&P 500.—MR

🟢 What’s up

• Howard Hughes Holdings soared 9.21% after billionaire Bill Ackman offered to acquire the portion of the real estate developer that he doesn’t already own.
• Speaking of acquisitions, Sage Therapeutics skyrocketed 35.14% after competitor Biogen offered $469 million to acquire the drugmaker.
• The steel deal isn’t dead yet: Cleveland-Cliffs rose 5.96% after the steelmaker tossed its hat in the ring and announced it will partner with Nucor (up 3.99%) to acquire US Steel. US Steel popped 6.07% on the news.
• The US may increase its Medicare Advantage reimbursement rate by 2.2%, a welcome turnaround for healthcare managers from last year’s decrease. Humana rose 6.66%, CVS Health gained 7.31%, and UnitedHealth Group climbed 3.93%.

What’s down

• As wildfires continue to rage in southern California, utility companies Edison International and PG&E are being investigated for their roles in the blaze. Shares fell 11.89% and 5.53%, respectively.
• Macy’s fell 8.08% after the retailer revealed that its holiday sales are going to be worse than expected.
• Quantum computing stocks were the hottest thing in markets just a few weeks ago, but thanks to Jensen Huang and Mark Zuckerberg, they can’t stop sliding. Rigetti Computing fell 32.25%, D-Wave Quantum dropped 33.62%, and IonQ lost 13.83%.
• Coinbase sank 2.93% as crypto-related stocks were dragged lower by bitcoin’s latest losses.

Members of Congress are allowed to invest, so long as they disclose trades over $1,000 within 45 days of their investment. Regardless of how you feel about our country’s leaders using their positions of power and insider knowledge to personally profit, it’s fascinating to get a glimpse into their financial maneuvering.

Unusual Whales, an excellent newsletter in its own right, publishes an annual report on the investment profits and losses of members of Congress in a given year. Their latest report just revealed that US Representative David Rouzer (R) of North Carolina enjoyed a 149% gain last year, making him the most successful investor in Congress. According to Unusual Whales, Rouzer’s gains were primarily from investments in Nvidia, Mastercard, Visa, and the JETS ETF that Rouzer made years ago.

Fun fact: The value of portfolios held by Democratic members of Congress rose 31% last year, while Republican portfolios gained 26%, both outperforming the S&P 500’s nearly 24% increase in 2024.

An action-packed week on Wall Street started off hotter than a MacBook Pro charger left plugged in all day. With so many headlines to choose from, we couldn’t pick just one—so here’s a quick look at a bunch of the biggest stock swings in markets today.

Good news is bad news: Abercrombie & Fitch raised its revenue outlook, and shares plummeted 15.66%. The retailer announced sales will rise somewhere between 7% and 8% in the fourth quarter, up from 5% to 7%. The problem is that Wall Street already expected sales to jump by 7.5%, so instead of a pleasant surprise, the announcement turned out to be disappointingly mediocre. It doesn’t help that Abercrombie’s holiday season sales rose 21% in 2023, which puts 7.5% well below par.

The deals keep coming: Johnson & Johnson announced it’s purchasing smaller drug-maker Intra-Cellular Therapies for $14.6 billion. Johnson & Johnson has made acquisitions a key part of its growth strategy, and Intra-Cellular’s specialization in treating neurological diseases such as schizophrenia and bipolar disorder will add a new layer to its growing healthcare portfolio. Johnson & Johnson rose just 1.70%, but Intra-Cellular popped 34.07%.

Speaking of healthcare, Moderna plunged 16.80% after the vaccine maker lowered its 2025 sales guidance from $3.5-$2.5 billion to $2.5-$1.5 billion. Moderna’s success with its Covid vaccine a few years ago has diminished as fewer people opt to get the shot and more competitors move into the market. In fact, fewer Americans overall are getting vaccines these days, which is taking a toll on the company’s revenue. Moderna is hoping that its upcoming RSV vaccine later this year will turn the tide.

• Here’s an incredible chart of how Canada would rank as the 51st state. Turns out Canucks have an impressive life expectancy.
• So close, yet so far: Blue Origin called off its rocket launch last night as the private sector space race continues to heat up.
• Speaking of heat, it's official: 2024 was the hottest year in recorded human history.
• Warren Buffett’s son Howard is being groomed to succeed his father and keep Berkshire Hathaway’s extraordinary investing culture alive.
• Honda and Nissan are merging as the Japanese automakers attempt to fend off less-expensive Chinese competitors.
• Economists mostly think that Donald Trump’s proposed tariffs will do more harm than good. But Stephen Miran, Trump’s nominee to chair his Council of Economic Advisers, says the more tariffs, the better.

A full week of major economic readings and the kickoff of the quarterly earnings cycle slowly gears up tomorrow with just two relatively minor reports.

The first is the NFIB Small Business Optimism Index, a survey of small businesses across the country to see how things are going. You may not read about these tiny companies on the front page of any newspaper, but small businesses are a key part of the US economy, and learning more about how optimistic (or pessimistic) business owners are can tell us a lot about where the economy is headed.

We’ll get more of a big-picture look at things with the Producer Price Index, or PPI. PPI measures inflation at the wholesale level, analyzing the prices domestic producers pay to create the goods they’re selling on store shelves. PPI rose higher than expected in November, though core PPI stayed steady. Economists are hoping to see a slowdown in PPI for the sake of the struggling manufacturing industry.