A busy calendar and new challenges will rock markets this week todayheadline

The stock market wasn’t supposed to open 2025 with a thud. That, at least, was the conventional wisdom. The big rally that erupted after the election of Donald Trump in November was supposed to continue well into the new year. 

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Instead, stocks have surprised by sinking, starting in early December. The issue: Long-term bond yields continued a surge that began in mid-September.

Related: Wall Street veteran fund manager unveils market forecast for 2025

 Add to that primary cause: 

• The uncertainty surrounding President-elect Trump’s agenda, especially on tariffs and deportations.
• Weakness in some key market sectors, including technology.
• Oil prices and gasoline prices that seem be inching higher.
• How the Los Angeles wild fires will weigh on the rest of the domestic economy. Remember, the population of Los Angeles County alone is larger than those of 40 states. (Its area is larger than Rhode Island and Delaware combined.)  

These factors set up a potentially volatile week for markets in the week before Donald Trump’s inauguration on Jan. 20. The week will be dominated by two key inflation reports on Tuesday and Wednesday and a host of earnings, especially from financial companies.

Here are the numbers at week’s end. 

The 10-year Treasury yield: 4.769%, the highest level since May and up from a low of 3.6% in September. It is the primary determinant of mortgage rates and the health of the housing. 

The rate on a 30-year mortgage: Somewhere between 6.95% and 7.3%. Lenders have been seeing interest in home buying and financing fade in recent weeks. Rates at 6% or lower seem to generate excitement.

Stock indexes: Standard & Poor’s 500 Index: Down 1.9% for the week and 4.5% since its all-time high of 6,099.97 on Dec. 6. Dow Jones Industrial Average: Down nearly 700 points on Friday, down 2.5% for the week and 7% from its December peak. The Nasdaq Composite Index: Down 460 points, or 2.3% on the week and down 5.2% since its Dec. 16 all-time high.

Key stocks: Apple  (AAPL)  is down 5.4% since Dec. 31. Nvidia  (NVDA)  is up 1.2%. Microsoft  (MSFT)  has slid 0.6%. Tesla  (TSLA)  has slipped 2.3%. Walt Disney  (DIS)  has dropped 2.4%.  

Related: Quantum computing CEO hits back on Jensen Huang’s blunt words

The pullback so far is not usual

If you worry that markets are about crash, hold on. Stocks typically decline 5% or more three times a year, 10% or more once a year and 20% once every 6.3 years, according to mutual fund company Capital Group.

Yes, 434 S&P 500 stocks were lower on Friday. The biggest loser was Constellation Brands  (STZ) , down 17.1% because the company cut sales guidance. Customers were drinking less wine and stronger spirits than expected.

But some stocks had big days on Friday because of decent earnings or prospects. Delta Air Lines  (DAL)  added 9% with strong earnings and guidance that 2025 will be the carrier’s best year ever. United Airlines Holdings  (UAL)  rose 3.3% and American Airlines Group  (AAL)  added 4.4% on hopes for big summer travel season.

Nonetheless, there is a big debate going on between enthusiastic bulls and skeptics about whether the big gains of 2023 and 2024 can be repeated a third time. Typically, two straight years of gains lead to an additional year of gains with a fourth year likely to be pressured. 

But the talk of 2025 being more difficult than 2024 is getting louder. Sam Stovall, chief investment strategist at CFRA, told theStreet’s Conway Gittens, “I think that there’s a good likelihood that we have a pretty challenging year 3, and we’re also starting the year with pretty stretched valuations.”

Related: The busiest airport in the world is no longer in Atlanta

The damages mount as L.A. fires rage on

Meanwhile, the Los Angeles fires were still not under control. Insurance stocks exposed to California took some big hits. Allstate  (ALL) , one of the biggest players in the state, was off 5.6% on Friday. Mercury General  (MCY) , best known for auto insurance in California, is also active in the property market. It was off nearly 20% to $48.63 on Friday. 

And no one has a clue how big the damages will ultimately be, much less how the insurers will get the cash to pay off. An AccuWeather report suggested property and economic losses just in the Pacific Palisades and Malibu neighborhoods might run to $52 billion to $57 billion, according to Bloomberg News. (Damages from 2005’s Hurricane Katrina ran about $200 billion.)

California has a housing insurance problem because insurers can’t win regulator approval for rates make their businesses profitable given the state’s fire risks. A question is what do homeowners who opted not to pay high rates to property insurers or into a California state insurance program do?

State Farm, the biggest U.S. insurance company, has stopped writing new policies in California, but has been servicing its existing customers. The company is owned by policy holders.

Ahead this week part I: Important inflation reports 

The big reason bond yields have been rising is that inflation is not close to the Federal Reserve’s 2% goal, and Friday’s jobs report was so bullish that investors concluded there’s no reason for interest rates to stop rising. 

In fact, even Fed officials conceded that the last mile of getting to 2% will take longer they expected.

More Economic Analysis:

• Fed interest rate cut bets in 2025 tied to Trump policy wild cards
• Inflation report adds to interest rate cut bet complexity
• Trump’s plans will test Fed interest rate cut bets in 2025

The Labor Department issues two closely watched inflation reports that will shed light on how sticky U.S. inflation: 

The Producer Price Index for December, due Tuesday before markets open, is expected to show a 3.5% year-over-year gain, according to FactSet. That would be higher than November’s 3% year-over-year gain. 

The Consumer Producer Price Index, due Wednesday before the market open, is expected to show a 2.8% year-over-year gain, up from November’s 2.7% gain, FactSet estimates.

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Ahead this week Part II: The earnings season erupts

A few earnings reports came out last week, like Delta Air Lines’ big report and surprising earnings from pharmacy giant Walgreens Boots Alliance  (WBA) . 

This week, the fourth-quarter earnings season gets serious. 

Banks and financial companies will dominate the headlines starting Wednesday with six of the biggest: Bank of New York Mellon  (BK) , Wells Fargo  (WFC) , JP Morgan Chase  (JPM) , Citigroup  (C) , Goldman Sachs  (GS)  and money manager BlackRock  (BLK) .

UnitedHealth Group  (UNH) , Morgan Stanley  (MS) , Bank of America  (BAC)  and U.S. Bancorp  (USB)  follow on Thursday. 

With them on Thursday is Taiwan Semiconductor  (TSM) , the giant fabricator of semiconductors and a key player in artificial intelligence.

Financial companies, stocks especially big banks, brokerages and money managers, stocks, had great years generally in 2024. The Financial Select Sector SPDR  (XLF)  exchange-traded fund was up 28.5% in 2024, third-best among the 11 ETFs that track the 11 sectors of the S&P 500.

On Friday, look for Citizens Financial CZFS, Regions Financial  (RF) , Truist Financial  (TFC) , money manager State Street  (STT)  and oil services giant Schlumberger  (SLB) .   

Related: Veteran fund manager issues dire S&P 500 warning for 2025