“A week is a long time in politics.” — Harold Wilson

Good evening, 

Stocks marched higher for another week, driven by optimism about President Donald Trump’s proposed policy changes to lower corporate taxes and decrease regulation. Meanwhile, the much-feared tariffs weren’t signed, despite a flurry of executive orders. 

The S&P 500 advanced 1.74% this week, putting its gains for the year at 3.73%. But the start to 2025 has been volatile, with most of the rally taking place over the past two weeks.

Fundstrat Head of Research Tom Lee says the next week will be especially crucial to watch. If stocks can hold onto those gains to finish higher in January, historical data show that the rest of the year tends to be positive for the market, he added. That trend is known as the January Barometer.

“It would again strengthen the case that markets are gonna be up double digits this year,” Lee said. “The markets look stronger than we expected, which is good, and sentiment really broke down, which is another positive.” 

Among the reasons for that belief is that inflation is slowing down. The most recent evidence was offered by the new tenant rent index, released by the Bureau of Labor Statistics, which showed that market-based rent prices in the fourth quarter fell in the negative from a year ago. 

That offers a more promising picture on the shelter inflation front compared to the one in the consumer-price index, which Lee said has lagged because it is more statistically smoothed based on existing rents. Last week, the December consumer inflation report showed that shelter inflation continues to be stubborn. 

“The biggest contributor to inflation is softening,” he said at our weekly huddle. “To me, that’s a positive.”

Lately, inflation has been stickier than many expected, making it harder for the Federal Reserve to lower interest rates. For the better part of last year, the central bank had turned its attention to its other dual mandate—the job market—but since then inflation has shown signs it might pick up again, sending investors scrambling to scrutinize the latest economic reports. 

The Fed meets next week. Investors largely expect central bankers to hold interest rates steady. 

The best news this week was that there was no action from Trump about tariffs.

“People were fearing the tariffs would hit, but it looks like those may be either softer or delayed or not as high a priority, but in either case, that's a positive,” Lee said. 

Head of Technical Strategy Mark Newton is of the same opinion, adding that “investors overestimated the degree with which we would see broad-based tariffs.”

Newton shared that in the last few trading days, 11 of the 16 major currencies have actually rallied against the greenback. Our Chart of the Week has more details:

“Everybody was fearful, and now that fear is turning into optimism,” Newton added. 

He likes that a higher number of stocks are participating in the market rally. The percentage of stocks in the S&P 500 moving above their 20-day moving average, a technical indicator, is now up to 75%. 

Yet, the path ahead for equities may not be as easy. 

“I'm not bearish, but I do suspect we can see consolidation after a very sharp up move in a short period of time,” Newton said. 

Elsewhere

A new era of U.S. politics began this week, after Donald Trump was sworn in as the 47th president. As expected, he signed a flurry of executive orders targeting everything from birthright citizenship to mass deportations to pardoning more than 1,500 rioters prosecuted for the attack on the U.S. Capitol in 2020. He continued to shake things up virtually, too, at the World Economic Conference in Davos, telling world leaders and other global elites that he will put America’s interests first and doesn’t care if it affects allies. 

New fires broke out in Los Angeles this week, forcing thousands more to evacuate. The Hughes Fire became the third-largest fire in Southern California this week. While firefighters were able to make progress against it, the trend of new fires breaking out shows how vulnerable the area is and threatens to mire the area even further into a housing crisis. For now, the area is under dangerous fire weather conditions. The National Weather Service office in Los Angeles warned that wind gusts of up to 65 miles per hour could ignite new fires or spread existing ones. 

Purdue Pharma’s owners Sackler family struck a new $6.5 billion settlement of mass litigation alleging their drug OxyContin fueled mass addiction, even though they knew the products were dangerous. The move was even more welcomed because the Sackler family members, whose wealth was estimated at around $11 billion, won’t receive a blanket shield of liability from civil lawsuits. That is important because when an agreement was being worked out last year, the family proposed a restructuring plan that would have provided them with immunity from all current and future opioid-related lawsuits. That agreement was struck down by the U.S. Supreme Court last year.

Two Americans detained in Afghanistan, Ryan Corbett and William McKenty, were released this week. The release was secured during the final days of the Biden administration, but the actual release didn’t happen until Trump took office. In order for the exchange to take place, the U.S. released Khan Muhammad, who was convicted in 2008 on narcoterrorism and heroin distribution charges. 

An unlikely winner from the AI revolution has emerged to be GE’s power spinoff called GE Vernova. Shares have tripled since their debut about nine months ago. The company manufactures energy equipment and the new leadership has been able to quell investors’ fears about pursuing growth at the expense of profitability. 

Netflix is raising prices again. The streaming giant reported a record increase in the number of subscribers in the final quarter of 2024, thanks to its foray into live programming. At the same time, it wants to continue to capitalize on that success by increasing its membership prices. The standard account with ads now costs $7.99 a month, up from $6.99. 

Oscar nominees were released this week, including “Emilia Pérez,” “The Brutalist,” and “Wicked.” The most nominations went to Emilia Pérez, a musical focusing on trans identity. Its star, Karla Sofía Gascón, is the first trans woman to be nominated for the best actress Oscar. That makes quite a statement considering the events of the week, where Trump signed an order declaring that there are only two sexes recognized in the United States.