Weekly Market Report: January 24th, 2025
Markets took in a relatively light economic calendar, some DC policy indications, and the first heavy week of fourth quarter earnings reports, ending in a second straight positive week for U.S. equity markets. U.S. stocks were up approximately 1.5% with larger cap and growth-oriented stocks leading the way while developed (+3.6%) and emerging (+2.8%) markets received a boost from a 1.76% decline in the USD. Interest rates in the U.S. were relatively flat on the week while commodities were down 1.2% thanks in part to WTI oil declining 4.1% to close back below $75/barrel.
Market Anecdotes
- An interesting observation on U.S. versus European stocks is that, while the U.S. has dominated most of the past five years, European stocks have surged to begin the year, up 4.7% on a currency adjusted basis, while U.S. is up a still healthy 3%+.
- A one-year look back at large caps versus small caps shows the post-election surge in small caps faltered during December’s spike in interest rates while growth stocks’ dominance over value stocks, a consistent trend over the past 10yrs (ex/2022), has stayed firmly intact.
- Q4 earnings growth looks like it’s on a path to impress with small, mid, and “the 493” posting healthy numbers early in the season. FactSet is reporting blended earnings and revenue growth of 12.7% and 4.6% respectively.
- Keeping a close eye on Treasury auctions and bond yields last week showed a healthy appetite for UST on the longer end of the curve with interest rates staying relatively flat for the week.
- Markets are hopeful that fiscal policy takes the shape described by incoming Treasury secretary Scott Bessent where he noted tax policy being in line with historical averages and spending policy well above historical averages.
- D.C. policy indications last week included the announcement of a sizable $500b government AI investment initiative and 25% tariff indications for Columbia, Mexico, and Canada. Keys are ROI on AI and how inflationary/anti-growth impacts of tariffs feed into growth and financial markets.
- Global monetary policy is mixed with markets expecting FOMC rate cuts potentially beginning in May while the BoJ last week raised rates 25 bps (to 0.50%) as expected.
- The quarterly KC Fed Energy Survey responses are a good reminder that market prices, not regulatory red tape, is the primary driver of oil production where respondents noted average profitability breakeven of $64 but a price of $89 to substantially increase production.
- Bianco Research noted ‘off-exchange’ trading volumes recently surpassed the 50% level, but the rapid increase has been driven by retail speculation in sub-$1 stocks.
Economic Release Highlights
- January’s U.S. PMI (M,S) registered 50.1, 52.8 with manufacturing coming in above consensus and services below and overall composite cooling from 55.4 to 52.4.
- The January PMI release from the Eurozone and UK (C,M,S) came in slightly above consensus expectations at (50.2, 46.1, 51.4) and (50.9, 48.2, 51.2) respectively. China’s CFLP PMI for January of (50.1, 49.1, 50.2) softened versus the prior month and fell short of the spot forecast.
- December Existing Home Sales of 4.24M were up 2.2% MoM and are up 9.3% YoY, slightly more than consensus expectations.
- January’s final UofM Consumer sentiment reading was revised downward from 73.2 to 71.1.
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