Bulls Pass Another Test of Resolve Array ( [cookie] => 028e30-7b8e53-f22388-681246-65348e [current_usage] => 1 [max_usage] => 2 [current_usage_crypto] => 0 [max_usage_crypto] => 2 [lock] => [message] => [error] => [active_member] => 0 [subscriber] => 0 [role] => [visitor_id] => 0 [reason] => Usage under limits [method] => ) 1 and can accesss 1
Our Views
- This week has been a positive test for equity markets. After a sizable plunge Monday (“drug tariff” reaction), equity markets recouped most of those losses to end the week slightly down. As noted several times recently, this is the second consecutive “Monday surprise” (last week, DeepSeek) and equities managed to shrug off those fears.
- This has been a good week for data, supporting the view that the U.S. economy is strong but also that inflationary pressures are not necessarily accelerating.
- Notably, January ISM Manufacturing came in above 50 for the first time in 26 months, likely signaling accelerating EPS growth for small-caps and broader index.
- Also, Dec JOLTS job openings came in below consensus at 7.6mm (the second-lowest since the pandemic), signaling a soft jobs market.
- Our base case for 2025 is the S&P 500 reaches 7,000 by mid-year and probably sees a weaker 2H ending the year at 6,600. But this is just a “base case,” and to me, 2025 is currently tracking better than this.
- This remains a choppy market for U.S. Equities in the near term as part of stellar ongoing intermediate-term uptrends, which showed no evidence of deterioration despite any of the recent DeepSeek and/or Tariff-related volatility spikes.
- While I still think that a rally back to new all-time highs might take time for both SPX and QQQ, it looks right to position for the eventual breakout, looking to buy pullbacks if/when they appear in the next 1-2 weeks.
- Both U.S. dollar and U.S. Treasury yields likely should begin a more serious decline in the weeks to come at a time when sentiment remains subdued.
- Overall, I believe it’s right not to be complacent until this consolidation has given way to the actual breakout in SPX and QQQ. Intermediate-term trends are technically bullish, and pullbacks at this point will likely hold at 6000 before pushing up above 6121. Such a move would likely coincide with a move up to 6300.
- With the threat of an escalating trade war and economic data robust enough to discourage a more dovish Fed stance, we believe the upside risk for the DXY and yields has increased in Q1.
- Given the magnitude of initially proposed tariffs, the manner in which they were introduced, and the possibility of additional tariffs on the EU, there appears to be another angle: these tariffs, ostensibly aimed at narcotics and illegal immigration, may simply be a way for Trump to showcase the “USD wrecking ball.”
- Moreover, the market remains highly volatile and headline-driven, inhibiting the crypto market from gaining meaningful momentum. While regulatory developments are a key medium- to a long-term tailwind for crypto, it is unlikely that any incremental “good news” will be announced in the near term.
- To be clear, we still anticipate that crypto will outperform this year. However, we believe it is prudent to manage downside risk in the near term (1-2 months) and consider raising cash/reducing altcoin exposure (plan for BTC dominance higher).
- Japanese Prime Minister Shigeru Ishiba met with President Trump on Friday, seeking to renew and strengthen a special relationship between the U.S. and Japan.
- Congressional Republicans continue to seek a strategy that will enable them to approve funding for President Trump’s multifaceted agenda, with unanimous House GOP support needed for all or most aspects of it due to their narrow majority.
- The debt ceiling, the impending March 14 federal government shutdown deadline, and funding for border security are likely the top issues to be discussed by Republicans gathering at Mar-a-Lago this weekend.
Wall Street Debrief — Weekly Roundup
Key Takeaways
- The S&P 500 slipped 0.25% this week to 6,025.99, while the Nasdaq declined to 19,523.40, down 0.53%. Bitcoin was at USD $95,913.75 on Friday afternoon, down about 1.8% from Monday levels.
- Fundstrat Head of Research Tom Lee sees 2025 as tracking better than his constructive base case thus far into the year.
- Head of Technical Strategy Mark Newton shares Lee's view, noting that despite the turbulence of the last two weeks, "the market actually looks quite healthy to me."
"Mamas, don't let your sons grow up to be Cowboys ... or Oilers." – Chuck Noll, Head Coach of the Pittsburgh Steelers, 1969-1991
Good evening,
The resolve of the bulls was tested once more this week. Two weeks ago, the Chinese artificial intelligence startup DeepSeek shook up markets with its advanced and purportedly low-cost R1 model. This week it was President Donald Trump's Feb. 1 announcement of tariffs to be levied on goods from Canada, Mexico, and China. Yet, as Fundstrat Head of Research Tom Lee noted, "equities seem to have managed to largely shrug off any fears being raised." The S&P 500 ended the week slightly lower, down 0.24%.
"It feels like the market has gone through a lot, but you know, markets are roughly at the same levels where they were two weeks ago," Head of Data Science Ken Xuan remarked at our weekly research huddle. Agreeing with Lee's view of market resilience, "Tireless Ken" also pointed out that year-to-date, every sector except Tech is up.
Head of Technical Strategy Mark Newton agreed. "All in all, I think the market's a lot healthier than what many people would think if you just heard the news flow and you think that things have got to be awful. Technically speaking, the market actually looks quite healthy to me. There's been no break of any sort of meaningful uptrends."
Addressing what was arguably the most impactful market news of the week, Newton said that in his view, "this whole fear of tariffs really has not affected the market almost one iota in terms of technical structure." However, he noted, "it certainly has affected sentiment. Sentiment has gotten a lot more skittish in recent weeks – well off the peaks of last year."
From a contrarian perspective, this could be seen as positive for investors seeking to get or stay ahead of consensus, he suggested: "My thinking is that it's right to be optimistic and use this fear as a way of thinking that things likely are going to be resolved back to the upside."
There was a lot of macroeconomic data released this week, and in that respect as well, Lee saw it as a good week, "supporting the view that the US economy is strong." In particular, the ISM Manufacturing index (released Monday) rose above 50 for the first time in 26 months in January. As Lee explained and as our Chart of the Week below illustrates, this "likely signals accelerating EPS growth for small-caps and broader index," as it has in every cycle since 1996.
We also saw a softer jobs report than expected – 143,000 jobs added, below the 175,000 figure economists had expected. This softer reading "could pull forward a rate cut," Lee suggested, recalling that at the January Federal Open Market Committee (FOMC) press conference, Federal Reserve Chair Jerome Powell said, "We don’t think we need [the labor market] to cool off anymore, [and] we do watch it extremely carefully."
Although Lee sees this week's macro data as indicating that "inflationary pressures are not necessarily accelerating," it is worth noting that the University of Michigan's survey of consumer sentiment showed expectations of inflation 12 months from now have climbed. As he observed, "equity markets turned down [on Friday] after the U Mich 1-yr inflation expectations surged to 4.3%." Yet although gasoline prices were up, Lee believes political views – and simple math – were the bigger drivers of the hike in expectations. "Expectations by those identifying as Democrats surged to 5.3%," he noted, while expectations by those identifying as Republicans fell to 0%. "Because Republicans were unlikely to go outright negative on their inflation expectations, the median got pulled up," he argued.
Elsewhere
Ten people were killed in the worst mass shooting in Swedish history, at the Risbergska school in Orebro, about 124 miles west of Stockholm. Swedish news sources identified the shooter as Swedish local Rickard Andersson, who was reportedly later found dead by suicide. While the investigation is ongoing, the Swedish government announced plans to tighten gun control in response to the shooting. The school provides a range of classes for adults, including vocational training, programs for people with intellectual disabilities, and Swedish-language classes for immigrants.
President Trump suspended tariffs on small imports from China, after his order last weekend ending the so-called "de minimis" exemption on duties for shipments worth less than $800 caused logistical chaos. The U.S. Postal Service had announced on Wednesday that it would halt all incoming packages from China and Hong Kong after Trump's initial order, only to reverse its decision hours later. Removal of the "de minimis" exemption had widely been seen as intended to target shipments from low-cost e-commerce sites like Shein and Temu.
Japanese Prime Minister Shigeru Ishiba met with President Trump at the White House, seeking to build a connection with the U.S. President. Trump is widely considered to have had a good relationship with Ishiba's predecessor, the late Shinzo Abe. Ishiba was the second head of state to visit Trump this week. A day earlier, Israel's Binyamin Netanyahu was also welcomed at 1600 Pennsylvania Avenue, after which the U.S. President appeared to suggest that the U.S. would take over the Gaza Strip and turn it into the "Riviera of the Middle East." Next week, India's Narendra Modi will visit President Trump as well.
Amazon's quarterly results put it poised to dethrone its retail rival Walmart as the top quarterly revenue generator in the S&P 500. The Jeff Bezos-founded company reported 4Q 2024 revenue at $187.7 billion, roughly in line with estimates. Analysts expect Walmart to report quarterly revenues of $180 billion on Feb. 20. Despite reporting results after the close on Thursday that beat on both top and bottom lines, Amazon shares sank in trading after the company presented a disappointing 1Q 2025 outlook.
The Bank of England cut rates by 25 bps to 4.5%, suggesting that worries about UK GDP growth are currently a bigger concern than inflation. The UK central bank lowered its 2025 GDP growth forecast from 1.5% to 0.75% while also noting it expects headline inflation to climb to 3.7% this summer. The UK central bank further warned that growth could fall short of even those expectations depending on the tariffs President Trump chooses to impose on Britain. Two of nine members of the rate-setting panel voted for an even bigger cut of 50 bp.
Spotify reported a quarterly profit for the first time ever. The 16-year-old music-streaming service beat expectations on new subscribers while cutting costs. It also attributed part of its success to its expansion into streaming both podcasts and videos of podcasts being recorded.
President Trump initiated plans for a U.S. sovereign wealth fund, signing an executive order to do so. Although details were not provided, Treasury Secretary Scott Bessent said the fund would "monetize the asset side of the U.S. balance sheet," particularly a "combination of liquid assets." Trump suggested that one potential acquisition by the fund would be TikTok, in effect nationalizing the company and creating a state-run social network. Bessent and Commerce Secretary nominee Howard Lutnick will be tasked with fleshing out the details of how the fund will operate.
And finally: A Stradivarius violin made in 1714 sold for $11.25 million at Sotheby's New York, making it one of the most expensive instruments. Notably, the Hungarian violinist Joseph Joachim used the violin during the premiere performance of the Brahms Violin Concerto in 1879.
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Stock List Performance
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