Week in Review: January 24, 2025

January 27, 2025

Recap & Commentary

Markets ended the holiday-shortened week higher, with the S&P 500 recording a new record high, as investors focused on fourth quarter earnings reports and a slew of executive orders issued by Donald Trump, many of which centered on campaign pledges regarding immigration, energy, and regulations. Curiously absent were orders focused on trade/tariffs. That in turn gave markets optimism that perhaps Trump’s initial threats to levy significant tariffs on imports from Canada, Mexico, China, and other countries were intended more as a negotiating ploy than specific policy proposals.

Trump did, however, say that 25% tariffs on imports from Mexico and Canada could begin as soon as February 1. In 2023, the US imported ~$900B of goods from its two largest trading partners. At the same time, the US exported ~$675B of goods to the two countries, goods that could presumably be subject to retaliatory tariffs. Despite the continued possibility of higher tariffs, which could potentially stoke inflation, interest rates as measured by the 10-Year Treasury yield were unchanged for the week suggesting investors are taking a wait-and-see approach to how potential trade policies and actions unfold.

Through Friday, 16% of S&P 500 companies had reported fourth quarter earnings.  Thus far, 80% have beaten their earnings estimate, while 62% have beaten their revenue estimate. According to industry group FactSet, earnings growth for the quarter is expected to be 12.7%, which if realized, would be the highest year-over-year growth rate since 4Q21. On December 31, the estimated year-of-year growth for 4Q24 earnings was 11.8%.

Economic Commentary

US manufacturing activity rose to a six-month high in January, though the improvement was more than offset by decelerating service sector activity, which slowed to a 9-month low. Overall, business activity remained positive during the month, but like the service sector, also slowed to a nine-month low. Employment growth rose to its highest level in 2.5 years, led primarily by the service sector, with more modest improvement in manufacturing. Prices also rose at the fastest pace in four months, which bear watching from an inflationary standpoint.

Existing home sales rose 2.2% in December to an annualized rate of 4.24M, slightly better than expected. Nonetheless, for the full year, sales of existing homes fell to their lowest level since 1995, hampered by various factors including record high prices, elevated mortgage rates, and rising home insurance and property tax costs. In addition, supply remains limited at 3.3 months based on the current pace of sales.

Consumer sentiment dipped in January with consumers views of current and future conditions edging lower. One-year inflation expectations remained unchanged at 3.3%, while five-year inflation expectations fell 0.1% to 3.2.%

Initial jobless claims rose 6K to a still modest 223K. Continuing claims, however, rose to a three-year high, suggesting that those who have recently lost work are finding it more difficult to land new jobs.

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Of Note

Tech companies Oracle, SoftBank Group, and OpenAI announced a joint venture dubbed Stargate with the stated goal of spending $500B over the next four years to build out AI infrastructure in the US.

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Market Indices   (As of 01/24/2025)

• 4Q24 GDP
• Core PCE Inflation
• New Home Sales
• Pending Home Sales
• Personal Income & Spending
• Durable Goods Orders
• Consumer Confidence
• Initial Jobless Claims