Investment Update February 4, 2025

Last Week on Wall Street

Economic news for the week included the Federal Reserve keeping short-term interest rates unchanged, while U.S. economic output for Q4 came in above-trend but below the prior quarter, and personal income/spending positive. Gains in new home sales accompanied continued positivity for home prices. Durable goods and consumer sentiment fell back.

Equities were mixed globally last week, with most regions down, although a few countries bucked the trend. Bonds were up slightly, as interest rates ticked down. Commodities were also mixed, related to uncertainty over upcoming tariff policy and a strong U.S. dollar.

U.S. stocks started off poorly on Monday along with the news from the Chinese based artificial intelligence company DeepSeek, although some of the surprise faded later in the week as markets absorbed the news as being perhaps less earth-shattering as it first appeared. By Friday, concerns over North American tariffs, also noted earlier, pulled down sentiment. Sectors were mixed for the unusual week, with gains in communications, health care, consumer staples, and financials; energy and technology each fell by 3-5%, due to different drivers. Real estate was down slightly, with little change in interest rates. Earnings reports from several technology firms appeared to offer mixed results, with much of the corporate discussion focused on the promise of AI as opposed to current earnings trends. In one of the bigger weeks for U.S. company earnings, per FactSet, just over a third of S&P 500 companies have now reported for Q4. Over three-quarters of these have noted a positive earnings surprise, and over 60% a positive revenue surprise, with the blended earnings growth rate having improved to 13.2% (which would be the best quarter since 2021 if it holds out).

Foreign stocks were mixed, with gains of a percent in the U.K. offset by declines in Europe, Japan, and emerging markets—despite a rise in the value of the U.S. dollar generally. Earnings results were decent, and the European Central Bank cut interest rates by -0.25% due to subdued economic growth, as did the Bank of Sweden, and Bank of Canada, with the latter largely due to the fear of U.S. tariffs. The Brazilian central bank raised rates by 1.00%, to combat ongoing inflation, which prompted a 4% rise in stocks.

Bonds were slightly higher as interest rates across the U.S. Treasury yield curve fell back just slightly. Traditional government bonds and investment-grade corporates gained, while high yield and floating rate were little changed. Foreign bonds were mixed, as the U.S. dollar rose about a percent.

Commodities were mixed to lower for the week, with gains in precious metals and agriculture offsetting declines in energy and industrial metals, much of which was due to concerns over the net currency-translated impact of tariffs and the strengthening of the dollar. Crude oil prices fell by -3% last week to $74/barrel.

(Source LSAConnect)

Fact of the Week

The terms ‘optimism’ or ‘optimistic’ were mentioned by 61% of S&P 500 companies reporting Q4 earnings through 1/24/2025. That compares to an average of less than 44% dating back to 2003, and if the pace continues through the entirety of earnings season, it would be the highest percentage since at least 2003. (Source: Bank of America)