Weekly Wrap

The Dow Jones Industrial Average eked out a 0.3% gain this week while the S&P 500 declined 1.0%, the Nasdaq Composite fell 1.6%, and the Russell 2000 logged a 0.9% loss.

The week started on a sharply lower note following weekend focus on a Chinese AI platform DeepSeek, which garnered popularity for being less resource-intensive than alternatives like ChatGPT. This called into question the competitiveness of companies that are powering the AI sector and it could alter capital spending plans if the DeepSeek model proves to be as good as advertised. 

NVIDIA (NVDA) dropped 17% on Monday, logging its largest single-day loss in market capitalization ever. Shares were 15.8% lower than last Friday by the end of the week. 

It was a busy week that featured earnings news from about 40% of the S&P 500 in terms of market capitalization, a decision by the FOMC, and influential economic releases.

Apple (AAPL), which closed 5.9% higher this week, Microsoft (MSFT), which declined 6.5% this week, Meta Platforms (META), which jumped 6.4%, and Tesla (TSLA), which declined 0.5% this week, were some of the top names that reported quarterly results. IBM (IBM +13.8%), Starbucks (SBUX +9.0%), Boeing (BA +0.3%), General Motors (GM -8.3%), and Lockheed Martin (LMT -6.8%) were also among the headliners in terms of earnings news.  

On Wednesday, the Federal Open Market Committee (FOMC) voted unanimously to leave the target range for the fed funds rate unchanged at 4.25-4.50%. That was in-line with the decision widely expected by the fed funds futures market.

It was noted in the directive that "Inflation remains somewhat elevated." The last directive in December said the same. What was missing this time was the added statement in the December directive that, "Inflation has made progress toward the Committee's 2 percent objective..."

Also noted in the January directive was that, "...labor market conditions remain solid." This messaging pointed to the Fed remaining inclined to wait and see what messages avail themselves in future data. 

Fed Chair Powell communicated that stance more than once during his press conference, noting right off the bat that, "With our policy stance significantly less restrictive than it had been, and the economy remaining strong, we do not need to be in a hurry to adjust our policy stance."

There was some volatility in stocks and bonds in immediate response to these developments, but markets ultimately settled the day little changed from levels seen ahead of the 2:00 ET policy announcement. This was an indication that participants didn't see anything truly surprising in Wednesday's decision or in the Fed Chair's comments.

This week's economic lineup featured an encouragingly low level of initial jobless claims (207,000) for the week ending January 25 and a refreshingly strong 4.2% growth rate for personal spending in the fourth quarter, which was the best since Q1 2023.

Also, the core-PCE Price Index (the Fed's preferred inflation gauge) was up 2.8% year-over-year for the third month in a row following a 0.2% month-over-month increase.

Stocks sold off late Friday after the White House confirmed that 25% tariffs for Canada and Mexico, and a 10% tariff for China, will begin Saturday (February 1). The basis for the tariff actions were tied to immigration, trade deficit, and fentanyl issues.

It wasn't exactly breaking news as there were similar reports out on Thursday, but the added uncertainty heading into the weekend was enough to drive selling interest and quell any buy-the-dip action. There were subsequent reports hinting at behind-the-scenes negotiations that may lead to the tariff actions being called off or at least watered down, but that didn't help stocks much.

Treasuries had a volatile week, ultimately settling with gains. The 10-yr yield was six basis points lower than last Friday at 4.57% and the 2-yr yield was three basis points lower than last Friday at 4.24%. 

• Dow Jones Industrial Average: +0.3% for the week / +4.7% YTD
• S&P Midcap 400: -1.2% for the week / +3.8% YTD
• S&P 500: -1.0% for the week / +2.7% YTD
• Russell 2000: -0.9% for the week / +2.6% YTD
• Nasdaq Composite: -1.6% for the week / +1.6% YTD

Monday:

The stock market was mixed on Monday. Big tech stocks, semiconductor-related names, and utility shares with AI exposure registered outsized declines while money rotated to other areas of the market.

NVIDIA (NVDA) logged its largest single-day loss in market capitalization ever, driven by concerns over China’s DeepSeek AI model. This AI model attracted attention after it was perceived as much more cost-effective than U.S. alternatives, such as OpenAI’s ChatGPT.

The potential of DeepSeek to challenge the competitiveness of leading U.S. AI players raised questions about the future direction of the sector, particularly if DeepSeek can deliver on its promises. In response, the PHLX Semiconductor Index (SOX) has plummeted 9.2%, as investors reassess capital spending plans.

This weakness did not leak into the "rest" of the equity market as AI exuberance that led many names sharply higher was rung out of the market. More S&P 500 sectors closed higher (six) than lower (five). The Dow Jones Industrial Average rose 0.7%, with 20 of its 30 components in the green.

Reviewing Monday's economic data:

• December New Home Sales 698K (Briefing.com consensus 680K); Prior was revised to 674K from 664K
  • The key takeaway from the report is that new home sales growth was ahead of expectations in December, but selling prices jumped from the bottom of the range that was seen in 2024 toward the top, which presents a headwind to selling activity going forward.

Tuesday:

The stock market recovered a bit following sharp declines in response to the news about DeepSeek. The S&P 500 closed 0.9% higher than its prior close and the Nasdaq Composite jumped 2.0%, closing near their best levels of the day. The Dow Jones Industrial Average (+0.3%) and Russell 2000 (+0.2%) also closed in positive territory.

The upside action was led by mega caps and chipmakers, and NVIDIA (NVDA) was chief among them after logging its largest single-day loss in market capitalization ever in Monday's session.

The buying interest in mega caps and semiconductor shares didn't pass through to the broader equity market. The equal-weighted S&P 500 closed 0.5% lower.

Reviewing Tuesday's economic data:

• December Durable Orders -2.2% (Briefing.com consensus 0.4%); Prior was revised to -2.0% from -1.1%, December Durable Goods - ex transportation 0.3% (Briefing.com consensus 0.5%); Prior -0.1%
  • The key takeaway from the report, though, is the understanding that new orders for nondefense capital goods excluding aircraft -- a proxy for business spending -- were up 0.5% on the heels of a 0.9% increase in
• November, thereby softening the disappointment of the headline number.
• November FHFA Housing Price Index 0.3%; Prior was revised to 0.5% from 0.4%
• November S&P Case Shiller Home Price Index 4.3% (Briefing.com consensus 4.2%); Prior 4.2%
• January Consumer Confidence 104.1 (Briefing.com consensus 108.1); Prior was revised to 109.5 from 104.7
  • The key takeaway from the report is that consumers, in general, remained pessimistic about future employment prospects.

Wednesday:

The stock market had a somewhat mixed showing. There was not a lot of conviction on either side of the tape in the early going as participants waited on the FOMC policy decision at 2:00 ET, followed by Fed Chair Powell's press conference at 2:30 ET.

There was some volatility in stocks and bonds in immediate response to those developments, but markets ultimately settled little changed from levels seen ahead of the 2:00 ET policy announcement. This was an indication that participants didn't see anything truly surprising in Wednesday's decision or in the Fed Chair's comments.

Reviewing Wednesday's economic data:

• Weekly MBA Mortgage Applications Index -2.0%; Prior 0.1%
• December Adv. Intl. Trade in Goods -$122.1 bln; Prior was revised to -$103.5 bln from -$102.9 bln
• December Adv. Retail Inventories -0.3%; Prior was revised to 0.0% from 0.3%
• December Adv. Wholesale Inventories -0.5%; Prior was revised to -0.1% from -0.2%

Thursday:

The stock market closed on a positive note after a sharp dip and quick recovery in the afternoon trade after President Trump told reporters that he will impose 25% tariffs on Canada and Mexico beginning Saturday due to immigration, trade deficits, and fentanyl, according to Bloomberg.

The S&P 500 logged a 0.5% gain, the Nasdaq Composite closed 0.3% higher, and the Dow Jones Industrial Average registered a 0.4% gain while the Russell 2000 outperformed, jumping 1.1%.

A solid earnings-related decline in Microsoft (MSFT) was overshadowed by positive responses to earnings results from the likes of IBM (IBM), Meta Platforms (META), and Tesla (TSLA). 

The upside bias in equities was also supported by the price action in Treasuries.

Reviewing Thursday's economic data:

• Q4 GDP-Adv. 2.3% (Briefing.com consensus 2.3%); Prior 3.1%, Q4 GDP Deflator-Adv. 2.2% (Briefing.com consensus 2.4%); Prior 1.9%
  • The key takeaway from the report is that there were stronger growth attributes in the fourth quarter than the headline number suggests. To that end, personal consumption expenditures were up 4.2% -- the strongest since Q1 2023 -- and real final sales of domestic product, which excludes the change in private inventories, was up 3.2%.
• Weekly Initial Claims 207K (Briefing.com consensus 221K); Prior 223K, Weekly Continuing Claims 1.858 mln; Prior was revised to 1.900 mln from 1.899 mln
  • The key takeaway from the report is the low level of initial jobless claims -- a leading indicator -- which is a good signal for growth prospects, as it conveys a reluctance on the part of employers to let employees go.
• December Pending Home Sales -5.5% (Briefing.com consensus 0.8%); Prior was revised to 1.6% from 2.2%

Friday:

The stock market was trading in good form for most of the morning, but stocks took a sharp turn lower in the early afternoon. The deterioration coincided with the White House confirming that 25% tariffs for Canada and Mexico, and a 10% tariff for China, will begin Saturday (February 1). The basis for the tariff actions were tied to immigration, trade deficit, and fentanyl issues.

It wasn't exactly breaking news as there were similar reports out Thursday, but the added uncertainty heading into the weekend was enough to drive selling interest and quell any buy-the-dip action. There were subsequent reports hinting at behind-the-scenes negotiations that may lead to the tariff actions being called off or at least watered down, but the major indices still closed near their worst levels of the session.

Even Apple (AAPL), which was up as much as 4.0% after reporting earnings, ultimately closed lower on the day.

Treasury yields jumped in response to the tariff talk, which put added pressure on equities.

The initial positive bias in equities was fueled by Friday morning's relatively pleasing inflation data. The core-PCE Price Index (the Fed's preferred inflation gauge) was up 2.8% year-over-year for the third month in a row following a 0.2% month-over-month increase.

Reviewing Friday's economic data:

• December Personal Income 0.4% (Briefing.com consensus 0.4%); Prior 0.3%, December Personal Spending 0.7% (Briefing.com consensus 0.5%); Prior was revised to 0.6% from 0.4%, December PCE Prices 0.3% (Briefing.com consensus 0.3%); Prior 0.1%, December PCE Prices - Core 0.2% (Briefing.com consensus 0.2%); Prior 0.1%
  • The key takeaway from the report is that consumer spending is strong (which we knew from the Adv. Q4 GDP report) and that inflation is sticky above the Fed's 2% target, making it clear why the Fed said it isn't in a hurry to adjust its policy stance.
• Q4 Employment Cost Index 0.9% (Briefing.com consensus 0.9%); Prior 0.8%
  • The key takeaway from the report is that compensation costs moderated to 3.8% for the 12-month period ending in December 2024 from 4.2% for the 12-month period ending in December 2023.
• January Chicago PMI 39.5 (Briefing.com consensus 41.5); Prior 36.9