The First Day of 2025: A New Start or a Repeat of December?

The first trading day of 2025 turned out to be a classic trap for the bulls. After the difficult finish in December, investors were hoping for a quick recovery in the new year. The indices jumped up at the market opening, attracting some bulls, but the direction was downward for the rest of the day. “The Magnificent Seven” (MAGS) lagged with a decline of about 0.4%, and the DJIA index saw an intraday drop of more than 700 points before a late recovery helped limit some of the damage.

The good news is that market breadth was surprisingly strong and close to balanced at the close, mainly due to the strength of smaller stocks. This strength was reflected in the Russell 2000 (IWM), which closed with a slight gain.

Now that the calendar has moved to the new year, some positions are still being made, but increasing interest is noticeable in stock picking. Smaller stocks have been oversold after heavy losses in December, and many of them have decent charts with good support. The end of the pressure from tax loss selling is also beneficial for these names. There was a long list of stocks with single-digit prices that made moves above 10%.

The names from “The Magnificent Seven” are of lesser interest as they face profit-taking and valuation concerns, but the market looks quite different when you focus on smaller stocks. They are not stretched or overbought, as are large-cap companies.

Conditions are good for continued interest in stock picking, with the lowest-paid names performing the best.