Market Soars as Earnings Increase and Inflation Eases

The US stock market had a strong showing in the week leading up to January 17, 2025, recording its best performance since President Trump’s election victory. Major indices such as the S&P 500, Poppa Dow Jones Industrial Average, and Nasdaq Composite posted gains of 2.9%, 3.7%, and 2.5%, respectively. The Russell 2000 Index, reflecting small-cap stocks, also saw significant growth of 4%, reaching a closing value of 2,275.88. Although the Nasdaq 100 remained in a dominant position, momentum was relatively weak.

The surge in stock prices was primarily fueled by impressive earnings reports from major banks like JPMorgan Chase, Goldman Sachs, and Citigroup, which registered substantial profit increases, leading to new record highs in their stock prices. The financial sector, represented by XLF, observed a 4% increase year-to-date. Alongside positive earnings, economic data played a role in boosting market sentiment. The Consumer Price Index (CPI) data for December showed a slight pullback in core inflation, dropping from 3.3% in November to 3.2%. This development provided hope that the Federal Reserve might continue its path of interest rate reduction. Consequently, US Treasury yields retreated, with the 10-year Treasury note yield dipping to approximately 4.61% at the end of the week, down from 4.77% the prior week.

In the technology sector, companies such as Amazon and Broadcom presented new investment opportunities, contributing to the overall market gains. Additionally, Bitcoin saw a resurgence nearing record highs, anticipating positive cryptocurrency policies from the new administration. At the time of reporting, Bitcoin was trading around $104,000, potentially surpassing its all-time highs, indicating positive market sentiment. The resurgence of Bitcoin is viewed as a risk-on indicator.

As investors move forward, it is recommended to gradually increase exposure to the market while maintaining attentiveness to potential downturns. The upcoming week is likely to reflect reactions to President Trump’s policy decisions, coinciding with the ramping up of earnings season. Semiconductors, considered a key risk-on indicator, transitioned back into a bullish phase with notably improved momentum.

On the other hand, the retail sector posted losses throughout the week, with a majority of the companies in the family sector displaying warning phases and weak momentum, highlighted by the real motion indicator. Energy and soft commodities, however, were in a bullish phase. Looking at the leading sectors’ performance year-to-date, the most disliked sectors in 2024, including Energy and Basic Materials, are leading the charge with gains of 7.71% and 5.24%, respectively.

In conclusion, while the positive movement in banks may hint at a short-term uptrend in the market, further affirmative market behavior is crucial to validate this trend. Additionally, easing commodity prices would allow the Fed to continue with its easing policies. The market’s volatility can be overwhelming, but investment decisions can be managed effectively with personalized guidance and hands-on management utilizing tactical, risk-managed strategies. Contact donn@mgamllc.com or keith@mgamllc.com for assistance.