Weekly Market Report: January 31st, 2025
The last week of January saw markets take in a large slate of fourth quarter earnings reports, an FOMC meeting, and digested some tariff headlines and a new Chinese AI competitor. By week’s end, U.S. equity markets closed down approximately 1% while developed and emerging markets were flat and down 0.54% respectively. Interest rates were down slightly (5bps-7bps) across the curve, closing with 10yr yields at 4.58%. Commodities and the USD moved in opposite directions, as they historically do, with crude oil (-2.85%) leaving the commodity complex down 1.6% and the USD strengthening 0.86%, particularly versus the CAD and Mexican Peso.
Market Anecdotes
- POTUS followed through on his tariff threats, levying 25% on all Mexican imports and most Canadian imports along with a 10% levy on Chinese imports. Uncertainty with Inflation, supply chains, and negotiating parameters surrounding illicit drug trade and immigration remain.
- A big earnings slate last week, including several of the ‘Mag 7s’, took us to 36% of the S&P reported with blended bottom line growth of 13.2%, beat rates of 77% and beat margins of 5%. Blended revenue growth is currently at 5% with a beat rate of 63% and beat margin of 0.9%.
- Equity market valuations, which feed into long-term expected returns and drive the equity risk premium, are lofty by most measures with the S&P 500 at 22x, even when excluding several big technology names or looking at other domestic equity indices.
- The FOMC held steady as expected last week while the ECB and BoC both cut by 25bps. The ECB cut both the refi and deposit rates to 2.9% and 2.75% respectively while the BoC took rates down to 3%.
- Market expectations for the next rate cut in the U.S. are currently in June of this year.
Economic Release Highlights
- PCE inflation in December was in line with consensus for both headline MoM (0.4%) and YoY (2.6%) as well as core MoM (0.2%) and YoY (2.8%). PCE (0.7% vs 0.5%) was stronger than forecast while Personal Income of 0.4% was right in line.
- The Employment Cost Index for 4Q was in line with consensus expectation at 0.9% QoQ with an annual growth rate of 3.8%.
- The first estimate of 4Q U.S. GDP came in slightly short of forecast (2.3% vs 2.6%), slowing down from the final 3Q reading of 3.1%. PCE was strong and beat the spot forecast (4.2% vs 3.1%).
- Eurozone 4Q GDP cooled from QoQ 0.4% to 0% with YoY growth of 0.9%, slightly below forecast.
- International Trade in Goods saw the trade gap widen from $-103.5B to -$122.1B where import growth cooled from 4.3% to 3.9% MoM and exports fell from +3.3% to -4.5%.
- Consumer Confidence did not recover as forecasted (104.1 vs 106.3) from November and December readings of 112.8 and 109.5 respectively.
- Durable Goods Orders missed forecasts to the downside (-2.2% vs 0.8%) while Ex-Transportation (0.3% vs 0.4%), and Ex-Transportation & Gas (0.5% vs 0.3%) readings were mixed.
- The Case-Shiller Home Price Index in November increased 0.4% MoM and 4.3% YoY, both slightly ahead of the spot consensus but within the forecast range.
- Pending Home Sales in December fell 5.5%, well below the prior month (2.2%), spot forecast (0.4%), and forecast range while New Home Sales of 698k were slightly above the 672k forecast.
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