Market Focus for January 31st, 2025

Tech stocks down this week:

Stocks ended a volatile week mostly lower, with the Nasdaq Composite seeing a sharp drop on Monday as AI competition fears weighed on tech shares, particularly NVIDIA, which fell nearly 17% following the debut of DeepSeek’s energy-efficient large language model. Despite concerns, the Dow managed a modest gain, marking its third consecutive week of increases. Earnings season continued, with companies representing 40% of the S&P 500’s market cap reporting results; strong performances from Meta and Apple provided a late-week boost, helping indexes recover some losses. Meanwhile, political developments also shaped market sentiment as President Trump reaffirmed plans for 25% tariffs on Mexico and Canada by February 1, along with a potential 10% tariff on Chinese goods, dashing earlier investor hopes for a softer trade stance.

DOW & TECH

THE DOW JONES INDUSTRIAL AVERAGE (DJIA) is the oldest continuing U.S. market index with over 100 years of history and is made up of 30 highly reputable “blue-chip” U.S. stocks (e.g. Coca-Cola Co., Microsoft). The Dow ended the week up 2.15% at 44,424.25 vs the prior week of 43,487.83. THE NASDAQ COMPOSITE INDEX tracks most of the stocks listed on the Nasdaq Stock Market – the second-largest stock exchange in the world. Over half of all stocks on the NASDAQ are tech stocks. The tech-driven Nasdaq ended the week up 1.65%, closing at 19,954.30 vs. the prior week of 19,630.20.

LARGE, MEDIUM, & SMALL CAP

THE S&P 500 LARGE-CAP INDEX is a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S. The S&P 500 is regarded as one of the best gauges of prominent American equities’ performance, and by extension, that of the stock market overall.

The S&P 500 ended the week up 1.74%, closing at 6101.24 compared to last week’s 5996.66. THE S&P 400 MID-CAP INDEX is the benchmark index made up of 400 stocks that broadly represent companies with midrange market capitalization between $3.6 billion and $13.1 billion. It is used by investors as a gauge for market performance and directional trends in U.S. stocks. The S&P 400 mid-cap ended the week up 1.11%, closing at 3275.64 compared to last week’s 3239.76. THE RUSSELL 2000 (RUT) SMALL-CAP INDEX measures the performance of the 2,000 smaller companies included in the Russell 3000 Index. The Russell 2000 is managed by London’s FTSE Russell Group and is widely regarded as a leading indicator of the U.S. economy because of its focus on smaller companies that focus on the U.S. market. The Russell 2000 ended the week up 1.40%, closing at 2307.74 compared to last week’s 2275.88.

U.S. COMMODITIES / FUTURES OVERVIEW

THIS WEEK’S ECONOMIC NEWS

Consumer spending up, jobless claims down:

In a light week for economic data, the Fed’s Beige Book reported minimal economic growth across most U.S. regions, noting a slight easing in worker demand and continued moderation in inflation. Despite the Beige Book’s lukewarm outlook, longer-term Treasury yields, which began rising in late September, continued their upward trend, with the 10-year U.S. Treasury yield reaching around 4.20%. Market expectations for Fed rate cuts decreased, anticipating 125 basis points of easing over the next year. Higher Treasury yields pushed tax-exempt municipal bond yields up, while primary issuance remained active. The investment-grade corporate bond market was weaker initially but stabilized, with lighter issuance and some oversubscription. High yield bonds declined amid macroeconomic challenges and higher yields, although the primary market remained active. It is worth noting that bank loans, benefiting from floating coupons, found technical support despite broader economic weaknesses.

Earnings Focus:

The 3rd Quarter 2024 earnings kicked off with 181 companies reporting earnings. Of the companies that have reported, 75% have reported earnings above analyst expectations. This is below the five but in line with the ten-year average of 77% and 75%. The projected Year over Year earnings growth rate for the S&P 500 is currently 4.4% while YOY revenue growth is 4.4%.When you examine the individual sectors, eight of the eleven sectors are estimated to report a year-over-year increase in earnings. The Technology and Communications sectors have the highest earnings growth rate for the quarter, while the Energy sector has the lowest anticipated growth compared to Q3 2013. The forward four-quarter P/E ratio of the S&P 500 is 21.9, which is above the thirty-year average. During the upcoming week, 169 S&P 500 companies (including 10 Dow 30 components) are scheduled to report results for the third quarter.

THIS WEEK’S HIGHLIGHTED STORY

What We’re Showing:

Commodities have experienced significant volatility over the past several years, driven by the COVID-19 pandemic, supply chain disruptions, and geopolitical tensions. In this graphic, we rank 11 key commodities by their annual performance since 2019.

Key Takeaways

Coffee:

Like many other agricultural commodities, coffee bean prices have seen huge swings in recent years. This volatility is usually due to climate challenges in leading export countries such as Brazil and Vietnam. Ranking in second is the real estate sector, with corporate cash making up 46% of current assets. This is due to the fact that companies in the sector largely invest in non-current assets, including properties and land, which leads its cash as a share of current assets to be higher than the majority of sectors.

Brazil, which grows arabica beans, suffered a severe drought in 2024 which amplified fires, interrupted hydro power, and parched crops. During the same year, Vietnam’s coffee trees were negatively impacted by heat waves which shrink the size of coffee cherries (the fruit that contains the coffee bean). Vietnam is the world’s top supplier of robusta beans, which is commonly used for instant coffee.

Gold:

Gold has been a top performing commodity over the past two years, after weaker performance in the post-COVID years of 2021 and 2022.

This is driven by several factors:

• High demand from central banks: Central banks (emphasis on China’s) have been building their gold reserves to diversify away from the U.S. dollar

• Geopolitical tensions: Global conflicts and trade wars are making safe-haven assets like gold more attractive

• Inflation concerns: Gold is also viewed as a hedge against inflation, further bolstering its demand