Weekly Market Report: February 7th, 2025

Last week markets took in a large slate of 4Q earnings reports, a full economic calendar, and several policy maker narratives on the speaking circuit. Some of the mega cap names (AMZN, TSLA, GOOGL) lagged last week pulling growth stocks down slightly more than value stocks. U.S. equity markets were down slightly for the week while developed international (+0.47%) and emerging markets (+1.12%) notched respectable gains thanks in part to a slight decline in the USD of 0.30%. Oil closed the week down 2.1% but the broader commodity markets (+0.23%) were up with healthy rallies in metals, both industrial and precious as well as grain contracts.

Market Anecdotes

• Last week took the S&P 500 to 62% of the way through fourth quarter earnings reports with blended top and bottom-line growth of 16.4% and 5.2%, respectively. Beat rates and margins have been as expected with earnings but revenues have been below the norm.
• Tariff tax narratives again factored negatively into financial markets with Trump announcing he plans to issue more tariffs this week with most studies estimating a minor reduction to U.S. GDP of 0.5% (announced tariffs only) and a boost to CPI of 0.7%.
• Inflation expectations of the financial markets and consumers are closely monitored by the FOMC through various financial market metrics and survey data, both of which have risen due to growth expectations, tariff risks, and stubborn prices.
• UST Secretary Bessent spoke out last week against tariffs and reiterated the administration’s focus on lowering the 10yr UST yield, reigning in fiscal deficits to 3%, increasing oil production by 3 mbpd, and generating 3% GDP growth.
• The Fed speaking circuit was packed last week with thirteen appearances and a clear tone of ‘wait and see’ given the healthy labor market and above target inflation at this time.

Economic Release Highlights

• January Payrolls (143,000 vs 168,000) were slightly below forecast but within the consensus range of 125,000-225,000. The Unemployment Rate fell one tick to 4.0%. Average Hourly Earnings were above forecast for both MoM (0.5% vs 0.3%) and YoY (4.1% vs 3.8%) readings.
• The December JOLT Survey registered 7.6M openings, below the spot forecast of 8.0M and the consensus range of 7.8M-8.14M.
• January ISM Services Index fell short of the spot forecast (52.8 vs 54.0) and toward the low end of the consensus range.
• January ISM Manufacturing Index came in slightly above the spot forecast (50.9 vs 49.5) but was within consensus range.
• The February UofM Consumer Sentiment fell from January’s 71.1 reading to 67.8, well below the spot consensus estimate of 72.0 and the forecast range of 69.0-73.1. One year inflation expectations surged from 3.3% to 4.3% on the month.

Weekly Market Report: January 31st, 2025

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.

Weekly Market Report: January 24th, 2025

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.

Weekly Market Report: January 17th, 2025

Market Anecdotes

• Economic data last week generally served to cool the ‘no landing’ scenario with data reflecting moderating core services inflation, reinforcing notions of a cooling labor market and taking Fed policy expectations back toward where they were prior to last week’s jobs report. 
• The rise in interest rates since mid-September is a key market dynamic at this time and last week provided some much needed respite from the more recent leg higher since December 6th.
• Corporate earnings kicked off last week with Q424 expectations at 7.3% alongside downwardly revised but still robust 2025 quarterly growth of Q1 11.2%, Q2 9.4%, and Q3 12.7%. 
• An illustration from The Daily Shot painted a helpful illustration of U.S. equity category valuations reinforcing expensive headline and momentum indices countered by cheap small caps.
• An additional valuation note last week by Alpine Macro highlighted the U.S. equity risk premium currently near a 23 year low which speaks to the relative attractiveness of the S&P 500 to U.S. Treasury bonds.
• Forces underpinning the strong USD include relative global growth dynamics, a less aggressive Fed easing cycle, rising USD market-based bond yields, geopolitical risks, and overall bullish sentiment surrounding the USD.
• BCA noted the increase in UofM survey data on consumer inflation expectations was not reinforced by the NY Fed consumer survey on inflation where forward expectations were much more muted.

Economic Release Highlights

• December YoY headline (2.9% vs 2.9%) and core (3.2% vs 3.3%) CPI alongside MoM readings of headline (0.4% vs 0.3%) and core (0.2% vs 0.3%).

• PPI in December came in slightly softer than forecast with headline and core MoM readings of 0.2% and 0% respectively. YoY readings of 3.3% and 3.5% were in line with expectations. 

• Headline Retail Sales for December were slightly weaker than expected (0.4% vs 0.6%)

• NFIB Small Business Optimism Index improved to 105.1, a notable move higher from November’s 101.7 reading and above the spot consensus.

• The January NAHB Housing Market Index came in higher than expected (47 vs 45) and improved from December’s level.

• December Housing Starts (+16% MoM) and Permits (-1% MoM) both beat expectations, offering a slightly more upbeat tone to housing market dynamics.

Weekly Market Report: January 10th, 2025

Equity markets subscribed to a ‘good news is bad news’ narrative last week with healthy corporate earnings projections and a strong labor market adding support to the strong growth / Fed pause narrative, pressuring yields to the upside and stock prices downward. Global equity markets, including the U.S. closed down 0.5% to 2% with growth stock underperforming value stocks on the week. Bond yields reached their highest levels since October 2023 with the 10yr closing at 4.77% while the USD (+0.64%) and commodities (+3.13%) both moved higher.

Market Anecdotes

• The question of when stocks will become sensitive to higher bond yields grew louder last week amidst a backdrop of a shift back toward negative stock/bond yield correlations. Ultimately, a mix of fundamentals and market perceptions of prevailing inflation dynamics will dictate.
• The U.S. labor market was in focus last week with the JOLT and Employment Situation reports. The U.S. economy has added over two million jobs in the past year but the average time it’s taking the seven million “unemployed but searching” group has grown from five months to six months.
• Strong labor market reports last week, particularly Friday, led to a surge higher in interest rates and corresponding consolidation in equity markets. Higher market-based interest rates, less aggressive monetary easing, and a strong USD are working to tighten overall financial conditions.
• The question of what is driving bond yields higher points to both inflation concerns and increasing growth expectations with the latter arguably factoring more so than the former.
• FOMC minutes released last week echoed a more cautious approach toward easing but an easing bias, nonetheless. They have ample company in that mindset with 70% of Global central banks easing over the past three months with aggregate rates 550 bps lower.
• We are at the doorstep of 4Q earnings season with the S&P forecasted to post 11.7% growth, which would be its strongest mark since Q4 2021. Based on historical beat rates (75%) and margins (6.7%), it’s likely we may see a number closer to 14%.
• Elevated interest rates and have pushed corporate bankruptcies to their highest level (by issuer #) since the GFC despite nearly twice as many credit situations being addressed out of court, according to Fitch.
• Leuthold noted, thanks to a top-heavy December, year-end 2024 marked the only instance on record where 5 companies had 4% or greater weights in the S&P 500. It had been 2 or 3 for most of the past 5 years, including a peak of three way back in the tech bubble.
• Bianco Research reiterated a word of caution putting any weight in seasonal trends like the “January Effect” by highlighting January’s rank since 1928 (3rd best), compared to since 2000 (worst).

Economic Release Highlights

• The December Employment Situation report for December showed 256k jobs, well above the spot consensus of 165k. The unemployment rate fell unexpectedly one tick to 4.1%. Average Hourly Earnings were in line with the forecast at 0.3% MoM and 3.9% YoY. 

• The November JOLT Survey reported 8.098M job openings, well ahead of the forecasted 7.650M and above the range of estimates (7.585M-7.800M).

• The ISM Services Index for December registered 54.1, ahead of spot consensus 53.2

• JP Morgan Global Composite (52.6) and Services (53.8) readings for December both came in slightly above consensus expectations.

• UofM Consumer Sentiment reading for January registered 73.2, slightly below the forecast of 74.5 and oneyear inflation expectations increased notably from 2.8% to 3.3%. Long-term inflation expectations also jump 0.3% to 3.3%.