Weekend Update, January 13th, 2025

Index, Sector & Asset Performance

Global stocks declined last week on the back of a stronger than expected BLS jobs number leading to 1- a stronger dollar and 2-higher Treasury yields with the 10-year Treasury interest rate up +16bps on the week to 4.76%. The S&P 500 finished the week down -1.95%, with technology and interest rate-sensitive sectors like autos and real estate dropping the most. Before today’s open, the S&P 500 is about -4.5% off December 6th’s all-time high near 6100.

The most interest rate sensitive asset classes, small cap stocks and high growth technology stocks, suffered the worst declines last week.

Last week's equity returns chart.

The out-going President and his administration continue to throw up last minute regulatory and business roadblocks on the way out the door. Higher restrictions on “AI” computer chips and equipment, more domestic energy drilling restrictions, and additional restrictions on Russia cooled investor sentiment at the end of last week. Over the weekend, the Biden administration unveiled tighter rules on artificial intelligence chip exports. The latest set of rules includes a cap on AI chip exports to many countries, leaving only 18 “chosen” countries free and clear of restrictions. Previous chip restrictions largely focused on China and Russia.

Interest rates moved sharply higher last week following Friday’s strong jobs report. The 2-year yield rose +10 bps, and markets now price just one Fed rate cut in 2025. Since the start of the Fed cutting cycle in summer of 2024, the 10-year US Treasury yield has climbed by +106 bp to 4.8% and real yields have increased by +72 bp to 2.3%.

Economic Indicators and Earnings Commentary

The BLS released a its employment report, with the U.S. adding +256k jobs versus an estimate of 165k. This surprisingly strong job BLS growth (a +4 sigma upside surprise) lowered the unemployment rate to 4.1%. For what it’s worth, the OHFG investment team does not believe this is a real number and it will be dramatically revised lower in the future. This would be consistent with the on-going overstatement of the jobs data over the last 2 years to the point that the supposed 230k/monthly jobs gains of 2023 were revised down to 130k per month eventually.

The University of Michigan’s consumer survey reporting the highest long-range inflation expectations (3.3%) in 16 years.

The December CPI and PPI reports are due out Wednesday and Tuesday, and the November real GDP report is due Thursday.

4Q2024 earnings season starts this week with financial firms reporting. Analysts forecast +8% year/year EPS growth for the S&P 500, however that number has been ticking lower in its usual seasonal fashion. JPM, WFC, BLK, and C will report on Wednesday, January 15th. Technology stocks AAPL, AMZN, MSFT, and META will report January 29th and 30th. By February 7th, 73% of S&P 500 market cap will have released 4Q results. NVDA will report on February 26th.

Global Market Trends/Commodities/Currencies

The price of a barrel of oil surged to a 5-month high nearing $80/bbl on news of on the way out the door, the Biden administration 1- further limiting offshore drilling in the US and 2- could impose additional sanctions on ships carrying Russian oil. Moreover, the US jobs report also solidified confidence in the U.S. economy. The U.S. is producing almost 50% of the amount of oil as all of OPEC. This is the most relative output of oil in our country’s history.

Many commodities rallied at the end of last week on the back of the LA fires and the eventual need to rebuild much of that area.

Bitcoin fell back toward $90k this morning.

The US Dollar continues to strengthen and is the “chart of 2025” to watch. While “US Exceptionalism” is good for the US consumer and the dollar, it is a headwind to S&P500 revenue and earnings as over 40% of revenue is derived from overseas sales. Earnings estimates for the 4q24 and 1q25 have been ticking lower on the back of the stronger dollar.

Oak Harvest Weekly Stock Talk

Crash of a Lifetime (Again?), The Trouble with Harry Dent, Robert Kiyosaki, Jeremy Grantham: Part 2, 3, 4, 5

 

Week Ending 1/10/2025

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.