Hey Folks, buckle up! Markets are not only over valued but toss tariff’s into the mix and it can make for a volatile trading environment. Get my take on this week’s market round-up.
Market Sound Bites:
U.S. stocks finished the volatile week mostly lower, although the Dow rose modestly to notch its 3rd straight week of gains. Nasdaq experienced steep drop on Monday, driven by a sell-off in tech stocks in response to the emergence of DeepSeek, a Chinese artificial intelligence (AI) developer. Earnings season also continued to roll along, with companies representing approximately 40% of the S&P market capitalization reporting results during the week. 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% tariffs on Mexico and Canada, the U.S.’s top two trading partners, by February 1, while also threatening to levy an additional 10% tariff on goods from China.
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%, as was widely expected. We also saw the Core Personal Consumption Expenditures (PCE) price index supported the Fed’s comments regarding elevated inflation. Core PCE—which is the Fed’s preferred measure of inflation—rose 2.8% year over year in December for the 3rd consecutive month since accelerating a tick from 2.7% in September. The Fed’s long-term core PCE target is 2%. In addition, we saw on Thursday the U.S. economy grew at an annualized rate of 2.3% in Q4 and 2.8% for the full year, modestly below consensus expectations but ahead of the Fed’s long-run forecasts of 1.8%.
In Europe, the ECB reduced its key deposit rate by a quarter of a percentage point to 2.75%. ECB President Christine Lagarde noted that the disinflation process was “well on track” and that the decision was unanimous. Relative to Q3 of 2024, the eurozone economy stalled in the final three months of last year, according to a first estimate that fell short of consensus expectations for a 0.1% expansion. However, the full-year growth rate of 0.7% was in line with the ECB’s forecast. The bloc’s largest economies—Germany and France—contracted versus the third quarter.
In Japan, stocks were pressured by the Bank of Japan’s (BoJ) hawkish stance (it raised interest rates for the 3rd time within a year and revised its inflation forecasts upward at its January 23–24 monetary policy meeting). On expectations that the BoJ will continue gradually raising interest rates, the yen strengthened to the high end of the JPY 154 against the U.S. dollar range, from 156 at the end of the previous week. And finally, Japan’s core consumer price index, a leading indicator of nationwide trends, rose 2.5% year on year in January, matching expectations and up from 2.4% in December. The reading reinforced a hawkish outlook for BoJ monetary policy.
In Chinese markets we will see they are closed from January 28 to February 4 for the nationwide holiday and will resume trading February 5. Data also showed China’s economy kicked off 2025 on weak footing. The PMI Index unexpectedly fell to 49.1 in January, according to the country’s statistics bureau. The nonmanufacturing PMI—which measures construction and services activity—slipped to 50.2 from December’s 52.2. (Index readings above 50 indicate expansion, while those below 50 signal contraction.) And finally, we see that profits at large industrial companies fell 3.3% in 2024, according to the statistics bureau, marking the third straight year of declines.
Enjoy this week’s round-up.
Don’t Be A Rat Brain; Be the Red Stripe Zebra!!
Trade Smart !
hpb
