Last Week
The equity markets were lower after facing a trifecta of headwinds from China, the Fed, and the White House. On Monday, tech stocks were under extreme pressure in response to headlines highlighting the low-cost language model developed by Chinese artificial intelligence startup DeepSeek. On Wednesday, traders turned their attention to the hawkish tone of the Federal Reserve as the FOMC left interest rates unchanged. The central bank maintained the Fed funds rate after three straight rate cuts to the end of 2024, as Fed chair Jerome Powell noted the resilience of the economy and the risk of a return to inflationary pressures. Although the Chairman attempted to sidestep questions concerning the impact of tariffs on the economy, it seemed clear that the uncertainty of those policies contributed to the cautious stand. Indeed, on Friday afternoon, the administration announced the “immediate” tariffs on Canada, Mexico, and China, our three largest trading partners, going into effect on Tuesday.
Most economists agree that excessive tariffs are harmful to the economy. As we learned in the classic 1986 movie “Ferris Bueller’s Day Off,” Ben Stein plays a high school teacher who is vainly struggling to get some response from his dazed students. “In 1930, the Republican-controlled House of Representatives, to alleviate the effects of the… Anyone? Anyone?… the Great Depression, passed the… Anyone? Anyone? The tariff bill? The Hawley-Smoot Tariff Act. Which, anyone? Raised or lowered?… raised tariffs, to collect more revenue for the federal government. Did it work? Anyone?… Anyone know the effects? It did not work, and the United States sank deeper into the Great Depression.”
Most of the damage for the week came on Monday morning and then again on Friday afternoon following the Tariff announcement. By the closing bell, the S&P 500 had shed 1%, the Nasdaq Composite was down 1.6%, and the Russell 2000 was 0.9% in the red. Advancing and declining issues were about even, while the dollar and gold both moved higher. Crude oil reversed its recent gains, leading to the Oil & Gas sector faring the worst, with the Tech sector almost as bad. The more defensive sectors, led by Telecoms, Financials, and Consumer, all finished in the green. We continue to favor financials and the more defensive dividend-paying companies across all market caps.
Earnings season was in full swing, with four of the Magnificent 7 reporting their results. Thus far, earnings have exceeded expectations, with the S&P 500 on track to show a healthy 13.2% year-over-year growth.
This Week
“I don’t like Mondays!” The global financial markets traded sharply lower in response to the weekend’s tariff announcements. Hope springs eternal that this tariff talk is a negotiating strategy to address cross-border drug trafficking. Mexico’s president, Claudia Sheinbaum, said this morning that Trump will pause tariffs on Mexico for a month. For Canada and China, there could be a resolution over the next few weeks or months. If not, economists are prepared to reduce growth forecasts and increase the expected inflation rate.
Earnings will continue to be in focus, with 131 S&P 500 companies reporting results.
The most significant economic report will be Friday’s Jobs report for January, which is expected to show steady gains with the unemployment rate remaining steady.
January Small-Cap Stocks on the Move
+27.4% Logility Supply Chain Solutions Inc (LGTY) announced on January 27th that it had agreed to be acquired by Aptean, a portfolio company of Vista Equity Partners, for $14.30/share. The transaction represents a 24% premium to the closing price on January 23rd and is expected to close in the second quarter.
+20.2% QEP Co Inc (QEPC) reported solid fiscal third-quarter results, demonstrating stable revenue and strong gross margins driven by consumers spending more on home improvement projects.
+17.3% OSI Systems Inc (OSIS) shares rose after its fiscal second-quarter earnings release, which showed positive free cash flow for the first time in three quarters. Additionally, the company raised its full-year 2025 guidance.
+15.6% Sphere Entertainment Corp (SPHR) had positive momentum in January. Additionally, SPHR announced it appointed Robert Langer as EVP, CFO, and Treasurer of the Company. Mr. Langer most recently served as the Global Leader of Enterprise-Wide Financial Planning and Corporate Strategy at The Walt Disney Company (DIS).
+12.6% Accuray Inc (ARAY) announced several positive corporate updates in January, including the appointment of Leonel Peralta to COO and the announcement that its newest Radixact and CyberKnife systems had been approved for use in China.
-17.8% Shoe Carnival Inc (SCVL) shares sank after comparable footwear company Caleres (CAL) cut its full-year sales and earnings targets due to a soft holiday season.
-16.7% United States Lime & Minerals Inc (USLM) shares declined alongside its Energy sector peers during the month.
-20.8% Monro Inc (MNRO) shares slid after its fiscal third-quarter earnings release, which showed slight revenue declines with gross margin erosion due to increased promotional activity, customer trade-down to lower-priced tires, and higher store operating costs.
-28.6% Apogee Enterprises (APOG) shares sold off in a market overreaction driven by comments on short-term softness in non-residential construction end-markets.
The stocks mentioned above may be holdings in our mutual funds. For more information, please visit www.nsinvestfunds.com.