Weekly Wrap

It was an historic week for the country and the stock market. Donald J. Trump was inaugurated Monday as the 47th President of the Unites States of America. His inauguration happened to line up with Martin Luther King, Jr. Day, which was a market holiday.

When markets reopened on Tuesday, they wasted little time picking up where they left off in terms of last week's bullish bias. They did so digesting President Trump's declaration of a national energy emergency and a barrage of executive orders that, strikingly, did not include any implementation of tariffs for China. There was a suggestion by the president, though, that he is thinking of 25% tariffs for Canada and Mexico starting February 1.

It was the lack of a hard-hitting tariff on China, however, that spurred a relief trade that boosted the broader market along with the news of a $500 billion AI infrastructure initiative, dubbed Stargate, that involved OpenAI, Softbank, and Oracle (ORCL).

The positive price action continued Wednesday after Netflix (NFLX) wowed the street with its earnings report and paid subscriber growth. Dow components Procter & Gamble (PG) and Travelers (TRV) also provided earnings-related leadership. The price action pushed the S&P 500 to a new all-time high that was ultimately followed by a record closing high on Thursday.

The latter was driven by blue chip stocks and coincided with President Trump's virtual address to the World Economic Forum in Davos in which he said he will be pressuring OPEC and Saudi Arabia to lower oil prices, that he expects NATO countries to spend 5% of their GDP on defense, and that foreign companies that manufacture their products in the U.S. will enjoy a lower tax rate while those that don't face the prospect of tariffs.

The president also added that he will demand that interest rates come down immediately. That was interpreted as a tacit shot at Fed Chair Powell, who will be leading the FOMC meeting January 28-29. Bloomberg noted that the president later told reporters that he believes he knows more about interest rates than Fed Chair Powell, that he will speak to him "at the right time," and that he believes the Fed will listen to him.

The FOMC meeting will be a focal point in a big week next week that will include earnings reports from Apple (AAPL), Microsoft (MSFT), Meta Platforms (META), Amazon.com (AMZN), and Tesla (TSLA), as well as the Advance Q4 GDP Report and the Fed's preferred inflation gauge in the form of the PCE Price Index.

The FOMC meeting is not expected to produce a rate cut, but with President Trump's statement on interest rates, the intrigue surrounding the press conference went way up.

In terms of the week we're leaving behind, it was a good week for the broader market. The major indices increased between 1.1% and 2.2%. Ten of the 11 S&P 500 sectors registered gains ranging from 0.8% (consumer discretionary) to 4.0% (communication services). The missing link was the energy sector (-2.9%), which traded down along with oil prices on some worries that a "drill, baby, drill" approach could lead to a supply-demand imbalance.

The Treasury market maintained a relatively calm disposition, which also helped support stocks. The 2-yr note yield was unchanged for the week at 4.27% while the 10-yr note yield rose just two basis points to 4.63%. The U.S. Dollar Index was down 1.7% to 107.47.

• S&P Midcap 400: +1.1% for the week / +5.0% YTD
• Dow Jones Industrial Average: +2.2% for the week / +4.4% YTD
• S&P 500: +1.7% for the week / +3.7% YTD
• Russell 2000: +1.4% for the week / +3.5% YTD
• Nasdaq Composite: +1.7% for the week / +3.3% YTD

Tuesday:

Today was the first trading day with President Trump officially (back) in office, and it can be written that it was a good start for his administration in term's of the stock market's performance. The latter rallied on the understanding that a barrage of executive orders following yesterday's inauguration did not include any tariff actions against China.

That was deemed a relief by stock market participants who, nonetheless, still had to digest the president's added observation that he is thinking of 25% tariffs for Canada and Mexico starting February 1. It was not lost on stock market participants either that tariff actions against China are likely in the offing, but they seemingly resolved to take things one day at a time and they liked what they didn't hear yesterday on the tariff front.

The Treasury market seemed to as well, which was a big help for stocks today. The inflation-sensitive 10-yr note saw its yield drop another four basis points to 4.57% after hitting 4.80% a week ago.

That calm response paved the way for carryover buying interest that was broad based and also forged on 3M's (MMM 146.94, +5.91, +4.2%) better-than-expected earnings results, a CBS News report indicating President Trump will be announcing a $500 billion AI infrastructure initiative today that involves OpenAI, Softbank, and Oracle (ORCL 172.59, +11.56, +7.2%), and presumably some fear of missing out on further gains.

The gains were all the more remarkable given that they didn't include Apple (AAPL 222.64, -7.34, -3.2%), Tesla (TSLA 424.07, -2.43, -0.6%), or Microsoft (MSFT 428.50, -0.53, -0.1%). Apple was a real outlier today, feeling the pinch of analyst downgrades at Jefferies and Loop Capital, and a Bloomberg report suggesting its iPhone sales dropped 18% in China during the December quarter.

The S&P 500 energy sector (-0.6%) for its part was also an outlier. It was the only sector to record a loss, which followed President Trump's declaration of a national energy emergency that will allow for increased oil and gas production. WTI crude futures settled 1.7% lower at $75.99 per barrel, pressured by the notion that a "drill, baby, drill" approach could create too much supply.

The other 10 S&P 500 sectors, though, were on board with the rally effort. The industrials sector (+2.0%) topped today's performance rankings along with the real estate (+1.8%), health care (+1.7%), utilities (+1.6%), and materials (+1.3%) sectors in a predominately pro-growth tape.

Accordingly, small-cap and mid-cap stocks outperformed their larger brethren, value stocks as a group outperformed growth stocks, and breadth overwhelmingly favored advancers over decliners at the NYSE and Nasdaq.

The major indices all closed at, or near, their highs for the session on a day that was devoid of notable economic data.

Wednesday:

The stock market experienced some selling pressure today, but index-level performance didn't reflect that. The S&P 500 (+0.6%) reached a fresh all-time high of 6,100.81, powered by mega caps and chipmakers.

The Vanguard Mega Cap Growth ETF (MGK) closed 1.7% higher while the PHLX Semiconductor Index (SOX) gained 1.7%, buoyed by enthusiasm around AI initiatives. This followed President Trump's $500 billion AI infrastructure announcement, which brought together notable industry leaders like Oracle's (ORCL 184.22, +11.65, +6.8%) Chairman Larry Ellison, SoftBank CEO Masayoshi Son, and OpenAI CEO Sam Altman, helping propel sentiment in the tech space.

Market internals painted a different picture. At both the NYSE and Nasdaq, decliners outpaced advancers and the equal-weighted S&P 500 closed 0.4% lower. Also, the Russell 2000 (-0.6%) and S&P Mid Cap 400 (-0.4%) closed lower.

This more subdued performance comes after a period of notable outperformance to kick off the year. The Russell 2000 and S&P Mid Cap 400 are still 3.3% and 5.1% higher, respectively, in 2025. Areas of the market that aren't seen as benefitting directly from the AI hype exhibited some consolidation activity today with the exception of some names that reported earnings results.

Netflix (NFLX 953.99, +84.31, +9.7%) was one of the day's standout performers, surging after delivering the largest quarter of global streaming paid net ads in its history. Blue-chip names, including Procter & Gamble (PG 164.74, +3.02, +1.9%) and Dow component Travelers (TRV 246.72, +7.56, +3.2%), were also among the standouts, reporting strong earnings that bolstered investor confidence.

The 10-yr yield settled three basis points higher at 4.60% and the 2-yr yield settled two basis points higher at 4.30%. Treasuries moved to session lows after the $13 billion 20-yr bond reopening, which met stellar demand.

Reviewing today's economic data:

• Weekly MBA Mortgage Applications Index 0.1%; Prior 33.3%
• December Leading Indicators -0.1% (Briefing.com consensus 0.0%); Prior was revised to 0.4% from 0.3%

Thursday:

Today's session started with mixed action, yet ended on a positive note thanks to an influx of buying in the afternoon. Blue-chip companies led the charge, showing strength through the entire session while mega cap stocks weighed down the S&P 500 (+0.5%) and Nasdaq Composite (+0.2%) in the early going.

The afternoon surge led the S&P 500 to a fresh record high, powered by turnaround action in names like NVIDIA (NVDA 147.22, +0.15, +0.1%), Amazon.com (AMZN 235.42, +0.41, +0.2%), and Microsoft (MSFT 446.71, +0.51, +0.1%).

The Dow Jones Industrial Average outperformed its peers, trading higher through most of the session. Goldman Sachs (GS 639.50, +6.77, +1.1%), UnitedHealth (UNH 529.77, +10.05, +1.9%), and Caterpillar (CAT 406.40, +8.79, +2.2%) drove gains in the price-weighted index.

Other blue-chip names like GE Aerospace (GE 200.80, +12.44, +6.6%) and Union Pacific (UNP 248.05, +12.25, +5.2%) surged after encouraging earnings results and guidance, boosting the S&P 500 industrial sector (+1.0%).

Calm action in Treasuries also supported the afternoon pop. The 10-yr yield settled four basis points higher at 4.64% (after hitting 4.80% last week) and the 2-yr yield settled two basis points lower at 4.28%.

The market was also digesting the latest weekly jobless claims report, which showed a larger than expected increase in initial claims and the highest level for continuing claims since November 2021, as well as comments from President Trump who spoke to the World Economic Forum in Davos. In his remarks, the president said he will press OPEC and Saudi Arabia to lower oil prices, that he expects NATO countries to boost their defense spending to 5% of GDP, and he made it known that foreign companies producing products in the U.S. could enjoy a lower tax rate (or tariffs if they don't).

Notably, the president also indicated that he is going to demand lower interest rates. CNBC, citing a Reuters report, added that Mr. Trump is considering talking to the Fed and that he expects the Fed to listen to him when it comes to interest rates.

Reviewing today's economic data:

• Weekly Initial Claims 223K (Briefing.com consensus 219K); Prior 217K, Weekly Continuing Claims 1.899 mln; Prior was revised to 1.853 mln from 1.859 mln
  • The key takeaway from the report is the elevated level of continuing jobless claims, which connotes some increasing challenges in finding new employment after being laid off.
• Weekly EIA Crude Oil Inventories showed a draw of 1.02 million barrels; prior showed draw of 1.96 million
• Weekly EIA Natural Gas Inventories showed a draw of 223 bcf vs a draw of 258 bcf last week

Friday:

You can't win 'em all -- or so the saying goes, and the stock market didn't win today. Following gains in each of the three prior sessions this week, which culminated in a record closing high for the S&P 500 on Thursday, the S&P 500 and the other indices fell prone to some selling interest in Friday's session.

The losses were modest in scope, relative to the gains registered recently, and they were paced by the mega-cap cohort, which will be the center of earnings reporting attention next week when Apple (AAPL 222.78, -0.91, -0.4%), Microsoft (MSFT 444.06, -4.39, -1.0%), Meta Platforms (META 647.49, +18.33, +2.9%), Amazon.com (AMZN 234.85, -2.90, -1.2%), and Tesla (TSLA 406.58, -3.58, -0.9%) share their quarterly results. The Vanguard Mega-Cap Growth ETF (MGK) was down 0.6%.

META outperformed the group today, however, after announcing a $60-65 billion capex plan for 2025 that will focus on its AI growth initiatives.

That was some palliative news in the early going that helped mitigate the guidance disappointments from Texas Instruments (TXN 185.52, -15.09, -7.5%) and Boeing (BA 176.03, -2.96, -1.7%), but ultimately it wasn't enough to keep the semiconductor group, or the broader market, healthy. The Philadelphia Semiconductor Index declined 1.9%.

There were some individual standouts like Twilio (TWLO 136.23, +22.83, +20.1%), which impressed with its guidance at its Investor Day, but today was largely a day of consolidation after a run that saw the S&P 500 and Nasdaq Composite gain 6.0% and 6.5%, respectively, from their lows on January 13.

The consolidation interest clipped Dow component American Express (AXP 321.37, -4.50, -1.4%), which posted better-than-expected results on robust customer spending activity, and was up 9.8% for the year coming into today's session. It also squelched some of the excitement surrounding the year's first big IPO, as natural gas exporter Venture Global (VG 24.00, -1.00, -4.0%) stumbled out of the gate.

Some of the market's growth vigor was tempered following the preliminary January S&P Global US Services PMI, which showed a notable deceleration to 52.8 from 56.8 in December, and a weaker-than-expected consumer sentiment reading for January that was pressured by unemployment and inflation concerns.

Those reports took precedence in the Treasury market over a better-than-expected Existing Home Sales Report for December and helped drive Treasury yields lower. The 2-yr note yield settled one basis point lower at 4.27% while the 10-yr note yield, which had climbed to 4.66% earlier in the day, settled one basis point lower at 4.63%.

The U.S. Dollar Index (-0.5% to 107.48) also went lower today, as the greenback lost ground against most major currency pairs. The yen (USD/JPY -0.1% to 155.89) was a focal point after the Bank of Japan raised its key policy rate by 25 basis points to 0.50% and communicated a bias to hike again if the economy evolves as expected. Still, it was the euro (EUR/USD +0.8% to 1.0495) that shined today.

Within the S&P 500, it was the utilities (+1.1%) and communication services (+1.1%) sectors that shined brightest and the information technology (-1.1%) and energy (-1.0%) sectors that lost their luster.

Overall, six sectors finished higher and five sectors ended the day lower.

Reviewing today's economic data:

• The preliminary January S&P Global US Manufacturing checked in at 50.1 (an expansion reading) versus the final reading of 49.4 for December.
• The preliminary January S&P Global US Services PMI decelerated to 52.8 from 56.8 in December.
• The final University of Michigan Index of Consumer Sentiment for January slipped to 71.1 (Briefing.com consensus 73.0) from the preliminary reading of 73.2. The final reading for December was 74.0. In the same period a year ago, the index stood at 79.0.
  • The key takeaway from the report is that sentiment weakened as concerns about unemployment and inflation picked up.
• Existing home sales increased 2.2% month-over-month in December to a seasonally adjusted annual rate of 4.24 million (Briefing.com consensus 4.21 million) from an unrevised 4.15 million in November. Sales were up 9.3% from the same period a year ago, which was the largest increase since June 2021. On an annual basis, existing home sales in 2024 (4.06 million) dropped to their lowest level in nearly 30 years at the same time the median sales price reached a record high.
  • The key takeaway from the report is that home sales picked up in December despite higher mortgage rates, marking the third straight month of year-over-year gains with more inventory on the market than the same period a year ago.