Last Week
The S&P 500 squeezed out a gain of 0.3%, the Nasdaq dipped 0.2%, while small caps suffered a 2% loss. Declining issues modestly outpaced advancing issues, with the dollar slipping 0.5% and the yield on the 10-year Treasury unchanged at 4.24%. One might think it was a quiet week on Wall Street, yet, quite to the contrary, it was a news-packed wild ride. Earnings were strong, the Fed held rates steady, President Trump nominated a new Fed Chair, and the precious metals bubble burst.
Earnings season was in full swing with solid results, yet nagging concerns over AI spending pressured the Tech sector. Specifically, Microsoft posted solid results, but its share price dropped 10%, while Meta shares also declined despite strong earnings. Nevertheless, following a slew of strong earnings reports, the blended fourth-quarter earnings growth rate is 11.9% today, up from 8.2% last week. If 11.9% is the actual growth rate for the quarter, it will mark the fifth consecutive quarter of double-digit (year-over-year) earnings growth for the index. The forward outlook is also bright, with analysts calling for earnings growth rates of 11.7% and 14.9% for the first and second quarters, respectively.
On Wednesday, the FOMC kept rates unchanged, with Chairman Powell suggesting that future rate decisions would be data-dependent and that current rates matched current conditions. We have often been critical of Powell (although we applaud his excellent taste in music) during his tenure for being behind the curve and then overreacting to catch up. As his final months in the job approach, we feel that he has grown into the job. On Friday, President Trump nominated Kevin Warsh to succeed Powell. Unlike Powell, Warsh has the right background for the job, with a heavy focus on economics and financial markets, and was a member of the Board of Governors of the Federal Reserve from 2006 to 2011. He has argued for lower interest rates, believing that AI will significantly boost productivity and push down inflation.
The precious metals markets had a particularly wild ride, with Gold reaching $5,600 mid-week and silver topping $118, before both collapsed later in the week, tumbling 16% and 34%, respectively. We have suggested that precious metals deserve a modest allocation in most portfolios as a hedge against the uncertainties and risks of a dollar decline. Taking some profits during hyperbolic rises that result in that allocation being oversized is also advisable.
On the Chicago Sports Scene, it was a terrific weekend for the University of Chicago Maroons, with victories over Rochester and Emory at the Ratner Center. The Maroons went into the weekend ranked #6 in Division 3, while the Emory Eagles were ranked #1.
This Week
Earnings season will be in full swing, featuring reports from Alphabet, Amazon, and Advanced Micro Devices.
The economic calendar includes S&P Global Manufacturing PMI, ISM Manufacturing PMI, and ISM Manufacturing Prices on Monday, followed by JOLTS job openings on Tuesday. Wednesday brings ADP private payrolls plus S&P Global Services and Composite PMI readings. Initial jobless claims arrive on Thursday, and on Friday, the Nonfarm Payrolls and the unemployment rate will be the focus of the report.
No doubt there will be political and geopolitical developments that could disrupt the market. The U.S. economy and financial markets have shown incredible resilience amid endless global turmoil and uncertainty.
The stocks mentioned above may be holdings in our mutual funds. For more information, please visit www.nsinvest.com.