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Last Week

To tariff or not to tariff, that is the question. Is it nobler in the mind to suffer the slings and arrows of an outrageous trade deficit, or rather risk triggering a rise in inflation? Meet the new boss, the same as the old boss. Donald Trump took office in the U.S. presidency on Monday and signed a slew of decrees, many undoing or targeting actions taken by the Biden administration. Notably, he did not announce the immediate implementation of tariffs, warning that Canada and Mexico could face tariffs as soon as February. He reiterated “make in America or face tariffs” but later suggested that he would “rather not” put tariffs on China. This Shakespearean-like tariff drama seems likely to have many acts and scenes to follow.

On the other hand, there has been little drama in the fourth quarter earnings season, as results have continued to exceed expectations. Following the strong results, particularly from the Financial sector, the S&P 500 is now on track for its best quarterly earnings since the fourth quarter of 2021, when the economy rebounded from the pandemic shutdown. A strong quarterly report from U.S. streaming giant Netflix, highlighting the resilience of the U.S. consumer, added to the positive sentiment. That resilience could be tested in the upcoming months, as the University of Michigan consumer sentiment survey showed a downtick in January, with creeping caution concerning the jobs market and the inflation outlook.

The stock market rallied in response to all the developments, with the S&P 500 gaining 1.7% to set its first record high of 2025. The Nasdaq Composite followed suit with a 1.7% advance, and the Russell 2000 added 1.3%. Every sector except Energy finished in the green, and the number of advancing issues doubled declining issues. The yield on the 10-year Treasury trickled down a few basis points, while gold rallied sharply, and the dollar fell. Whereas cryptocurrencies have been surging and stealing the headlines, we remain more comfortable using gold as a hedge against the dollar and other uncertainties.

The Chicago Bears hired a new coach, leading to renewed optimism among diehard fans for the upcoming season. Sadly, nothing else is newsworthy for the Chicago Sports Scene on the professional circuit. Turning to D3 basketball, the Chicago Maroons are on a roll after victories against Emory and Rochester this past weekend.

This Week

Trading got off to a rocky start Monday morning as Nvidia (NVDA) sank double digits following news that a Chinese company has built an artificial intelligence model competitive with Western rivals for a fraction of the cost.

The big selloff came as Silicon Valley raved about Chinese company DeepSeek’s new model R1. Although seemingly developed inexpensively, it appears to perform at a similar level to those developed by rivals such as OpenAI.

Additional volatility could be expected as the three-ring circus will be in full action, with earnings reports, the Fed, and inflation data in motion.

On the earnings front, 102 S&P 500 companies, including 6 of the “Magnificent 7,” will report quarterly results.

The FOMC will be meeting; however, there is almost a 100% probability that they will leave rates unchanged. It will be interesting to see if and how the Committee addresses President Trump’s political pressure to lower rates.

The big economic report will be the BEA’s release of the PCE (Personal Consumption Expenditures) on Friday. Economists forecast a 2.5% year-over-year increase, slightly higher than the previous month’s increase. This key inflation reading will certainly play a role in the monetary policy debate.

The stocks mentioned above may be holdings in our mutual funds. For more information, please visit www.nsinvestfunds.com.