Though 2025 has barely started, it’s off to a bumpy and choppy start. However, several data points suggest that the multi-year bull market in stocks will continue, and bulls should stay the course. Below are five bullish catalysts for US equities:
1. Easing Geopolitical Tensions
Yesterday, several news outlets reported a “preliminary” ceasefire agreement has been reached between Israel and Hamas. Since the October 7th attack on Israel, Middle East tensions have been a significant risk and uncertainty for markets. Any easing of Middle East tensions is bullish for stocks.
2. Traders Expect a More “Dovish” Federal Reserve
2025 began much like 2024 did on Wall Street – with bearish skepticism about the Federal Reserve’s ability to bottle up inflation. However, this morning’s CPI reading did a monumental amount to quell concerns and prove to investors that inflation is likely “transitory.”
The Consumer Price Index (CPI) measures the average change over time in prices paid for a basket of goods and services by US consumers. CPI came in at an annual inflation rate of 2.9% (matching expectations), while Core CPI (which measures CPI ex-energy and food) beat expectations.
Traders now expect Jerome Powell and the Federal Reserve to cut interest rates twice in 2025. Remember, rate cuts inject liquidity into equities markets and lead to higher stock prices.
3. Small Cap Stocks Find Buyers
Small cap stocks and the Russell 2000 Index ETF (IWM) are up more than 3% after finding support at the 40-weel moving average – a level bulls have defended for more over a year. Renewed participation by small caps and forgotten-about stocks like KB Home (KBH) and Bank of America (BAC) is a bullish and healthy signal.
Image Source: Zacks Investment Research
4. Crypto Deregulation
Securities and Exchange Commission Chair Gary Gensler has been a harsh regulator during his tenure, especially towards the crypto industry. However, with the election of President Donald Trump, Gensler will be vacating his seat.
With the anti-crypto SEC vacating and President Trump’s SEC taking over, immediate and impactful changes should bolster the industry and its leading stocks within it, like Coinbase (COIN). Today, Reuters reported that Trump’s SEC plans to “overhaul crypto policy and freeze enforcement cases pending in the courts.”
While crypto will be the top beneficiary, deregulation across Wall Street could set off the “animal spirits.” For example, last night the SEC launched charges against Tesla (TSLA) CEO Elon Musk, which are likely to be dropped with the new administration in power.
5. “Washout” in the Number of New Lows
The NYSE New High-New Lows allows investors to monitor equites as a “market of stocks” rather than a stock market. Yesterday, the number of new lows reached its highest level in over a year – signaling a bullish washout scenario.
Image Source: Stockcharts.com
Bottom Line
Despite the choppy price action in equities, it’s too early for bulls to throw in the towel. Deescalating Middle East tensions, tamed inflation, and a washout in the number of new lows, suggest the bull market has legs in 2025.
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