January Barometer Bodes Well for Stocks Despite This Week's Nvidia-driven Slide Array ( [cookie] => d43cf0-527a91-29ea29-229c3f-64b2e6 [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
- The panic selling we saw on Monday after the DeepSeek R1 release, provided yet another test of the “resolve of the bulls”. The S&P 500 only slipped 1% this week, which we view as a pretty solid outcome that shows equity markets remain fairly resilient.
- We also saw a relatively dovish message from Federal Reserve Chair Jay Powell after this week’s January FOMC meeting, which arguably caused Polymarket odds of a rate hike in 2025 to drop from 29% to 14%.
- To us, those odds are still too high. We think the probability of a hike is 0% in 2025, and we view that 14% figure as reflecting the “hawkish” tilt of financial markets — with many still expecting inflation to make a resurgence. This is in contrast to our view that inflation is set to “fall like a rock.”
- Bottom line, 2025 is tracking better than our base case. We remain constructive and now see 2025 as less turbulent than we expected.
- SPX’s technical trend, breadth, and momentum have slowly improved over the last two weeks, showing evidence of a “Two Steps Forward, One Step Back” type trajectory.
- Meanwhile, both TNX and DXY have begun mild bounces after the recent declines that both produced since the pivotal Jan. 13 inflection point (technically bullish for equities and Treasuries while bearish for US Dollar).
- Equal-weighted SPX has been outperforming over the last couple of weeks, but to me, this looks to prove short-lived and should eventually lead to Technology regaining its footing after a dismal performance from AAPL and NVDA.
- Overall and based on my work, it’s premature to make the case just yet of pushback to immediate highs, given the lack of sufficient structural progress and notable weakness in some large Technology stocks. However, in my view, it’s right to be positive into mid-February, looking to make use of any weakness into next week as a chance to buy dips, expecting that pullbacks likely prove temporary and not too damaging.
- Developments since the inauguration confirm that the new administration is prioritizing an industry-friendly regulatory environment. Coupled with an easing of DXY/yields, a possible TGA spenddown, and favorable seasonality, we think it’s prudent to maintain a long bias.
- A hawkish Fed had posed a potential risk to our view that yields and the dollar would continue to roll over post-inauguration, but Fed Chair Jay Powell’s remarks after the Wednesday’s FOMC meeting and the market’s reaction suggest that this risk has been effectively neutralized as we head into February.
- This year, Lunar New Year fell on Wednesday, Jan. 29. Over the past decade, Bitcoin has posted a negative return in the 10 days following Lunar New Year only once. While the merits of factoring seasonality in one’s investment process is often debated, we choose to place significant weight on it when the seasonality is this strong, and thus far, the trend appears to be holding once again.
- As widely expected, the Federal Open Market Committee (FOMC) held interest rates steady this week, with Federal Reserve Chair Jerome Powell acknowledging that the committee had considered the likelihood of tariffs during their deliberations.
- President Trump had wanted a rate cut, and he is likely to want a cut at the next FOMC meeting scheduled for March 19.
- Meanwhile, Republicans do not appear to have come up with a strategy to deal with the political realities of their razor-thin House majority, which is about to get even narrower.
Wall Street Debrief — Weekly Roundup
Key Takeaways
- The S&P 500 declined 1.00% to 6,040.53 this week, while the Nasdaq slipped 1.64% to 19,627.44. Bitcoin was at USD $101,702.60 on Friday afternoon, also down about 1% from Monday levels.
- Fundstrat Head of Research Tom Lee sees January as a successful test of the "resolve of the bulls," with the AI thesis intact despite this week's developments.
- Despite this week's Nvidia-driven turbulence, Head of Technical Strategy Mark Newton views the market as still in "pretty resilient shape."
"Some people hear their own inner voices with great clearness and they live by what they hear. Such people become crazy, or they become legend." – Jim Harrison
Good evening,
The S&P 500 finished the week down 1.00%. Fundstrat Head of Research Tom Lee described that as "a pretty solid result," considering the disruptive news coming from China's DeepSeek on Monday. The startup announced a cutting-edge AI model that purportedly performs roughly as well as, if not better than, the latest and greatest coming out of Silicon Valley. More significantly, the company claimed that its R1 model had been developed and trained at significantly lower cost and using less-advanced, lower-powered chips.
Many in Silicon Valley find these claims credible, but some remain skeptical. Regardless of their accuracy, however, DeepSeek's claims called into question the thesis for AI spending and investment, sending markets in a panic. Perhaps the most visible evidence of that panic was Nvidia, whose shares fell 17% on Monday – its ninth-worst single-day decline ever.
Lee pointed out that if we exclude bear markets and recessions, Monday's plunge was the fourth-worst single-day decline for NVDA -3.55% ever. Yet in each of the three worse (Aug 8, 2003, Aug. 6, 2004, and Mar. 16, 2020) non-recession single-day declines, that panic marked the bottom tick. "The stock staged a massive recovery after that bottom tick three out of three times," he noted, "and in my view, this is likely to happen again." This is illustrated in our Chart of the Week:
Looking toward the longer term, Head of Data Science "Tireless" Ken Xuan had some thoughts about the thesis for AI-related stocks. At our weekly research huddle, he suggested that DeepSeek's achievement "could help to make [AI] more affordable and make more companies capable of building AI apps. This could actually create more demand, and not just for DeepSeek." He also noted that with DeepSeek's model being open source, this could facilitate AI advances by other companies as well. (Xuan's thoughts were roughly consistent with those of Microsoft CEO Satya Nadella, who responded to the DeepSeek news by posting on X that "Jevons paradox strikes again.")
Head of Technical Strategy Mark Newton noted that before this week, "Nvidia had been the No. 1 stock within the S&P 500 [by market cap], and that has since changed." Yet during the turbulence on Monday in the markets, the advance-decline ratio was, in his view, "fine."
"In fact," he added, "the 10-day ratio of the advancing stocks to declines spiked to the highest levels we've seen in quite some time. To me, that's actually a very good sign for the stock market overall, despite some of this short term sort of skittishness we're seeing."
With trading over for the month of January, Newton had this to say: "It's been a little bit of a choppy month, and despite the added turbulence earlier this week, the stock market remains in pretty resilient shape. I would argue that there's a chance that we're not out of the woods just yet. But there's a chance that within a week or two, we could actually start to turn up pretty aggressively."
Lee took a longer view about this month's activity. "This week, and this month, have seen successful tests of the 'resolve of the bulls,'" he told us. For him, this has implications for the rest of the year. "This is the 'January barometer.' As is often said, 'as January goes so goes the year.'" Since 1950, stocks have notched January gains 45 times. The median full-year returns for stocks in those years is 19%, with an 89% win ratio.
The 2025 January barometer (S&P 500 rose 1.65% in the first month of 2025) thus strengthens Lee's constructive base-case outlook for the rest of 2025.
Elsewhere
Tariffs are set to begin Saturday. President Trump plans to put 25% tariffs on imports from Canada and Mexico, and 10% on China. White House Press Secretary Karoline Leavitt said during a Friday presser that, "starting tomorrow, those tariffs will be in place." Though Trump has amplified his tariff threats since he got elected, it seemed like the tariffs taking effect on Feb. 1 got buried in a slew of executive orders signed during the new administration’s first few days – at least until now.
The Department of Justice sued to block Hewlett Packard Enterprise's acquisition of Juniper Networks due to antitrust concerns, surprising many who had expected the Trump administration to be more friendly to dealmaking. The DOJ asserted that such a merger risked "substantially lessening competition in a critically important technology market" – namely, wireless networking. HPE hopes the $14 billion acquisition of Juniper will result in a company that combines a formidable data-center business with leading networking capabilities.
The Trump administration on Tuesday sought to incentivize federal workers to resign as part of his bid to shrink the federal government, offering them roughly eight months of pay while simultaneously warning that those who do not accept the offer to step down by Feb. 6 could nevertheless find themselves fired. The offer was made to roughly 2 million federal employees but excludes employees in the U.S. Postal Service, those in immigration enforcement and national security, and military personnel.
American schoolchildren continued to show a slide in reading abilities, with just 67% of eighth graders capable of at least a basic reading level for their age group last year – the lowest reading of that metric on record. The reading ability of American students has largely been on the decline since around 2013, and can be seen in students across a range of states, school types, ethnicities, and economic backgrounds.
Boom Supersonic announced the first supersonic flight of an aircraft developed without government funding. Boom Supersonic's XB-1 exceeded Mach 1 during a Tuesday flight over the Mojave desert in California, a key milestone in its quest to re-introduce commercial faster-than-sound flights after Concorde flights ceased in 2003. Boom plans jets that can fly at Mach 1.7, making a trip from New York City to London in roughly 3.5 hours. (The Concorde flew at Mach 2.04.)
Syria has a new president, its first not of the al-Assad family since 1971. The coalition of military groups that overthrew Bashar al-Assad's government agreed to name Ahmad Al-Sharaa, who formerly headed Al Quaeda's operations in Syria, as president.
Softbank is reportedly considering a $15 billion - $25 billion investment in OpenAI. The Wall Street Journal, citing anonymous sources, reported that such an investment would exceed Microsoft's roughly $14 billion stake, and it would deepen ties between companies already linked through the Stargate joint venture.
Norway's sovereign wealth fund reported that 2024 profits set a record of NOK 2.5 trillion (USD $222.4 billion), besting the NOK 2.22 trillion ($195.8 billion) it made in 2023. The largest sovereign wealth fund in the world credited Tech sector gains for helping it to achieve a roughly 13% ROI in 2024.
And finally: The Louvre plans to move the tourist-favorite "Mona Lisa" to a new space as the world's most prestigious art museum plans a major renovation. As part of the plan, visitors hoping to see Leonardo da Vinci's celebrated portrait of a Florentine noblewoman will need to pay a separate entrance fee – helping to simultaneously fund the museum and manage the massive crowds that flock to get a glimpse of the painting also known as "La Gioconda."
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