WEEKLY MARKET UPDATE 1/17/2025
After falling over -1.5% last Friday, the S&P 500 rebounded nearly 3% this week as investors embraced goldilocks economic data (not too hot, not too cold) and the soft economic landing narrative. Last week’s jobs report for December roiled market, as it came in far stronger than anticipated and stoked inflationary concerns and expectations of a Federal Reserve less inclined to make further interest rates cuts. However, this week’s inflation data reversed many of those fears, as the consumer price index (CPI), came in colder than expected and was headlined by the lowest pace of services inflation since March 2022, as well as encouraging deflationary trends for shelter.
Dovish comments from Fed Governor Waller also buoyed sentiment as he indicated the potential for 3-4 cuts this year, which surprised markets and helped interest rates finish the week lower for the first time of 2025. Earnings season is only about 10% complete, but early results from the banks were also well received and the financial sector had one of its best weeks in 14 months. With inflation, interest rates, and earnings all providing tailwinds, stocks broadly moved higher with five straight days hallmarked by more than 350 stocks within the S&P 500 rising, the longest such streak of market breadth in history (per SentimenTrader).
Next week will be shortened by Monday’s MLK holiday, but it coincides with Inauguration Day, so the week will not be short on headlines. Uncertainty around Trump 2.0 policies remains, but Trump has made multiple pledges to enact various changes on “day one”, so investors are bracing for a potential wave of executive orders.
US EXCEPTIONALISM
Over the last year or so we have highlighted the dominance of mega cap stocks relative to all other US stocks, but we wanted to quickly point out an even more lopsided trend, US stocks versus their international peers. For over fifteen years (see chart below), US stocks have trounced the rest of the world and with economic growth expected to continue to favor the US, it is uncertain when this trend of US exceptionalism might end.
Ian G. Browning, CFA
Managing Director, Investment Strategies | Shareholder
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