February 2, 2025
Volume 12, Issue 05
Weekly Recap
Last week’s stock market was volatile, with domestic equities closing mostly lower, although the Dow Jones Industrial Average rose modestly to notch its third straight week of gains. The technology-heavy Nasdaq Composite experienced a particularly steep drop on Monday, driven by a sell-off in tech stocks in response to the emergence of DeepSeek, a Chinese artificial intelligence developer. DeepSeek released a new open-source large language model that reportedly requires much less energy and processing power than other leading AI applications, leading to competitive concerns in the broader AI space. The news led to shares of NVIDIA falling nearly 17 percent on Monday. Earnings season also continued to roll along, with companies representing roughly 40 percent of the S&P 500’s market capitalization reporting results during the week. Several positive earnings surprises and upbeat forward guidance, particularly from some notable large-cap tech companies (including Meta Platforms and Apple), appeared to be a tailwind for stocks late in the week and helped the major indexes recover some of their earlier losses.
The second week of the Trump administration also brought a slew of political headlines that appeared to influence sentiment, particularly regarding the administration’s plans for global tariffs. President Donald Trump reiterated his plan to impose 25 percent tariffs on Mexico and Canada, the U.S.’s top two trading partners, by February 1, while also threatening to levy an additional 10 percent tariff on goods from China. This comes after the prior week’s comments from the president, which seemed to give investors hope that he would take a softer-than-anticipated stance on global tariffs.
Meanwhile, the Federal Reserve concluded its first meeting of 2025 on Wednesday and announced it would be holding its policy rate range steady at 4.25-to-4.50 percent, as was widely expected. According to the Fed’s post-meeting statement, U.S. economic activity “has continued to expand at a solid pace,” while “labor market conditions remain solid” and inflation “remains somewhat elevated.” In a news conference following the meeting, Fed Chair Jerome Powell also stated that the Fed does “not need to be in a hurry to adjust” its policy stance and that it would need to see real progress on inflation or weakness in the labor market before making another rate cut, suggesting that the central bank will likely keep rates steady again at its next meeting.
The Commerce Department’s release of its core (ex-food and energy) personal consumption expenditures price index on Friday morning appeared to support the Fed’s comments regarding elevated inflation. According to the report, core PCE – which is the Fed’s preferred measure of inflation – rose 2.8 percent year-over-year in December for the third consecutive month since accelerating a tick from 2.7 percent in September. The Fed’s long-term core PCE target is 2 percent.
In other economic news, the Commerce Department reported on Thursday that the U.S. economy grew at an annualized rate of 2.3 percent in the fourth quarter and 2.8 percent for the full year, modestly below consensus expectations but ahead of the Fed’s long-run forecasts of 1.8 percent. The report cited increases in consumer and government spending as the main drivers of growth during the fourth quarter. U.S. Treasuries generated positive returns last week, due in part to an ease in the initial angst surrounding the DeepSeek developments from Monday. The belly of the yield curve performed best.
Market Monitor
A full listing of market performance data is available here.
DQYDJ.com (“Don’t Quit Your Day Job”) offers helpful investment calculators here, including one that shows total returns for individual stocks. Koyfin.com provides reams of data on individual stocks, including the ability to track total return — and just about anything else — over time.
In the News
The measure of price increases targeted by the Federal Reserve sped up in December, reflecting a stubborn spell of inflation that remains modestly higher than the central bank’s target. The personal-consumption-expenditures price index rose by 0.3 percent last month, compared with 0.1 percent in November, contributing to a 2.6 percent increase over all of 2024. Excluding volatile food and energy prices, the core version of the PCE price index rose by 0.2 percent last month, compared with 0.1 percent in November, and by 2.8 percent over the past 12 months. December was the third straight month that core PCE inflation stalled at 2.8 percent.
The Bureau of Economic Analysis reported Thursday that real gross domestic product grew at an annual rate of 2.3 percent in the fourth quarter of 2024, down from 3.1 percent growth in the third quarter and slightly below economists’ expectations. For all of 2024, GDP growth was 2.8 percent. The bulk of fourth-quarter growth came from consumer spending, with spending on goods and services growing 6.6 percent and 3.1 percent, respectively, both up from the third quarter. TLDR: Growth slowed but remained resilient at the end of 2024, leaving the U.S. economy on solid footing heading into a new year – and a new presidential administration – that is full of uncertainty. The Federal Reserve sent a clear message that it intends to keep short-term interest rates unchanged for the foreseeable future. Still, bond traders received little conviction about where rates are headed overall from the meeting as the new Trump administration’s aggressive actions during its opening days casts uncertainty over the direction of the economy. U.S. Treasury yields briefly jumped higher after the central bank’s statement appeared to indicate it held rates steady because its progress on taming inflation had ebbed. But Fed Chair Jerome Powell quickly swatted away those worries, saying he expects consumer-price increases to slow further, and yields came back down.
Traders have placed $10 billion in bets that high-yield corporate bond ETFs will drop in price, the most since at least 2023, running counter to a New Year’s rally that has swept through global markets. Some derivatives strategists are warning that risk premiums are narrowing to levels that are no longer sufficient for the unpredictable economic and political climate.
In the week ending January 25, the advance figure for seasonally adjusted initial jobless claims was 207,000, a decrease of 16,000 from the previous week’s unrevised level of 223,000. The 4-week moving average was 212,500, a decrease of 1,000 from the previous week’s unrevised average of 213,500.
Despite trepidation coursing through the bond market at the start of 2025, U.S. Treasury paper moved higherin January as traders remain on watch for how President Donald Trump’s tariff and immigration policies will develop.
Check on global inflation with the Big Mac index.
What happened to “paying off the national debt”?Why your portfolio is less diversified than you might think.
Charts of the Week
I found the following articles to be of note. Some may be of interest only to advisors while others are aimed more broadly. You may hit paywalls below; many can be overcome here.
- What to Know About Claiming Social Security Early (Elizabeth O’Brien)
- Nobody Knows Anything (Barry Ritholtz)
- Do I Get Rich, or Go Bust? These Tools Predicted My Financial Future (Jeremy Olshan)
This is the best thing I’ve read in the last week. The sweetest. The loveliest. The funniest; also funny. The wildest. The saddest; also sad. The most interesting. The most impressive. Fire. Of course he does. Asteroid risk. Pride and Prejudice was published 212 years ago last week. Insanely unlikely things happen surprisingly often. Wow. My 14th annual Investment Outlook, for 2025, is now available.
Nvidia stock fell 17 percent Monday, closing below its 200-day moving average for the first time in over two years. It began the day as the world’s largest company with a market capitalization of $3.5 trillion and ended the day as the third largest company with a market cap of $2.9 trillion. That’s a $593 billion loss, which was by far the largest single-day decline for any company in history. The loss in value was bigger than the market caps of 487 companies in the S&P 500.
“Don’t cry because it’s over – smile because it happened.” ~ Dr. Seuss
Securities and advisory services are offered through Madison Avenue Securities, LLC, a member of FINRA and SIPC, a registered investment advisor. This report provides general information only and is based upon current public information we consider reliable. Neither the information nor any opinion expressed constitutes an offer or an invitation to make an offer, to buy or sell any securities or other investment or any options, futures, or derivatives related to such securities or investments. It is not intended to provide personal investment advice and it does not take into account the specific investment objectives, financial situation, and the particular needs of any specific person who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any securities, other investment, or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. Investors should note that income from such securities or other investments, if any, may fluctuate and that price or value of such securities and investments may rise or fall. Accordingly, investors may receive back less than originally invested. Past performance is not necessarily a guide to future performance. Diversification does not guaranty against loss in declining markets.
