Weekend Update, February 10th, 2025
Index, Sector & Asset Performance
Groundhog week in the markets with U.S. stocks beginning a second straight week selling off on February 3rd, Monday morning on the back of the Trump administration announcing tariffs on Canada, Mexico, and China around noon Friday January 31st, while every other stock market in the world was closed. Once again investors bought the dip until, Friday morning when, news was leaked from the White House of coming higher “reciprocal tariffs”.
The S&P 500 ended the week slightly lower, down -0.24% while Chinese stocks rallied and once again led world markets. For January, the S&P 500 showed a positive return of +2.70%. The S&P 500 ended Friday’s session at 6,025, marking its second week in the red. February tends to be one of the seasonally weakest months of returns of the year particularly in the first-year Presidential term.
All the Magnificent 7 have reported earnings except Nvidia, and while the results have been good, there are high investor concerns around massive AI capex plans, their negative effect on short term free cash flow, and what future ROIC will be on these dollars. Year to date, the group is lagging the market by 450bps, and growth biased technology sector is the worst performing of the 11 S&P 500 sectors. Two weeks ago, the Chinese artificial intelligence startup Deep Seek shook up technology markets with its purportedly low-cost R1 model.
Among the big down stocks in consumer discretionary, Tesla shares fell -11% on the week amid reports that the electric vehicle maker’s sales of China-made electric vehicles fell -11.5% year over year to 63,238 units in January. In communication services, shares of Google fell – 9.2%. Consumer staples rose +1.6%, followed by a +1.3% gain in real estate and a +1% rise in energy.
In the bond markets, the concerns are a trade from slower growth and higher short term in inflation caused by tariffs. Market and consumer long-term inflation expectations have inched up in 2025. The 10-year Treasury yield ended at 4.50%, down modestly on the week. The 2-year Treasury yield remains range-bound as markets continue to price between one and two rate cuts in 2025. Real interest rates continue to trend lower on slowing economic growth.
Economic Indicators and Earnings Commentary
Friday’s U.S. employment report showed a decent labor market despite the headline gain of 143k) missing estimates. The report included an upward revision to the prior two months of 100k. Average hourly earnings rose +0.5% m/m. We remind readers that this government data is falsely precise, inaccurate, and has been consistently revised much lower the last 2 years under the prior administration. Two recent articles detailing the magnitude of the labor market revisions are included below.
In a sign of improving business manufacturing optimism, the ISM Manufacturing Index rose above >50 for the first time since 2022. Wednesday includes CPI and a second Powell speech. Thursday is PPI released and Friday retail sales.
This week’s data and economic events includes Tuesday NFIB small business optimism and Chairmen Powell has a speaking engagement.
4Q2024 earnings season continued strong however forward guidance is being more conservatively positioned on a stronger dollar. Per Goldman Sachs, aggregate earnings in 4q24 grew +12% year/year, beating the consensus expectation of +8% growth at the beginning of the reporting season. The median stock grew earnings by a more modest +7%.
This week MCD, SHOP, VRTX, ROK, DUK, KO, DDOG, DD, and CSCO report, but the season is close to over ex-NVDA post Wednesday.
Global Market Trends/Commodities/Currencies
After an early-week tariff-driven spike, Oil prices dropped to $70/bbl, resuming their downward trend on weaker global growth. Retaliatory tariffs from China on U.S. oil are unlikely to drive market prices higher, as China takes only 5% of U.S. crude exports. Natural gas prices rebounded and remained elevated as a cold weather has moved across much of the U.S.
Gold crossed $2,900/oz for the first time ever and is approaching $3,000/oz.
Bitcoin is trading around $97,000.
The US Dollar continues to look like a short-term top, which would help S&P 500 earnings in the 2nd half of the year. The financial media pushing the term “U.S. Exceptionalism” appears to be coming near 1- peaking US dollar and 2 – peaking S&P 500 relative performance vs. many other foreign stock markets.
Oak Harvest Weekly Stock Talk
Past performance is no guarantee of future results. Indexes are unmanaged and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges.
