“Livable” inflation numbers as reported by the Consumer and Producer Price Index (see below) as well as additional clarification surrounding President Trump’s proposed tariffs helped push stocks higher this past week. Currently, the market is looking past any initial impact on the economy from the tariffs, choosing to focus on perhaps the possible long-term benefit. Regardless, we continue to believe that stocks should be supported from any meaningful downturn by strong earnings, but also limited to the upside until the dust settles a bit in Washington.
· Sign Us Up! According to Oppenheimer & Co., Inc. and as reported by CNBC, “when the S&P 500 is 3% or higher on February 14, the index has historically continued to rise for the rest of the year 93.8% of the time, with an average gain of 13.7% since 1950.” The S&P 500 closed Friday up just shy of four percent year-to-date.
· Earnings have been strong. Guidance not so much as according to Bespoke Investments, “pretty much every sector has seen fewer companies raise guidance and more lower guidance this season compared to the last ten years.” We’re not surprised as despite the significant strength currently in the economy, given the change in administration, most companies are most likely adopting a wait-and-see attitude rather than choosing to bang the drums.
· The drama between Elon Musk and OpenAI CEO Sam Altman continues as the former offered to buy OpenAI for $97.4 billion. In a statement released by Marc Toberoff, a representative for Musk who led the offer said, “it’s time for OpenAI to return to the open-source, safety-focused force for good it once was.” Altman shot back on X , “no thank you, but we will buy Twitter for $9.74 billion if you want.” Musk and Altman were two of the founders of OpenAI ten years ago with Musk resigning from the board in 2018. Altman has since been trying to convert the non-for-profit into a for-profit entity to take advantage of the surging demand for AI. We have not heard the last of this.
· Buffett hangs on to Apple (AAPL). After paring its shares of Apple to 300 million at the end of Q3-2024 from $915.6 million one-year prior, regulatory filings with the Securities and Exchange Commission indicated that the Warren Buffett led, Berkshire Hathaway (BRKA) did not reduce those shares further during the most recent quarter ending December 31.
It’s The Economy…”
· Industrial Production, a measure of strength of the manufacturing, factory and utility sectors, rose 0.5% during January (2.0% y/y), after jumping 1.0% during December. Capacity Utilization rose to 77.8% during January from 77.5% during December and versus 78.2% one year ago. Manufacturing Capacity slipped to 76.3% during January from 76.4% one month prior and as compared to 76.4% one year ago. (Source, U.S. Federal Reserve)
· U.S. Export Prices rose 1.3% during January (2.7% y/y), this after rising 0.5% during December. Import Prices rose 0.2% during January (1.9% y/y), after rising 0.1% during December. Agricultural Export Prices rose 0.7% in January (0.5% y/y), after edging 0.2% higher during December. Non-Agricultural Export Prices rose 0.4% during January (2.9% y/y), after remaining unchanged during December. (Source, U.S. Bureau of Labor Statistics)
· Retail Sales slid 0.9% during January (4.2% y/y), after rising 0.7% in December. Retail Sales Excluding Motor Vehicles & Parts fell 0.4% (3.7% y/y). Two key components of this report, Sales at Gasoline Stations rose 0.9% during January (2.0% y/y) whereas Restaurant and Drinking Place Sales rose 0.9% during January (5.4% y/y) after rising 0.1% in December. (Source, U.S. Census Bureau)
· Prices at the wholesale level as measured by the Producer Price Index rose 0.4% during January after edging up 0.5% during December. Over the past year the PPI has risen 3.5%, up from 3.3% y/y last month, but down from a peak rate of 11.7% during March 2023. Energy prices rose 1.7% during January (0.0% y/y) after rising 2.2% during December. Finished food prices jumped 1.1% during January (5.5% y/y) after rising 0.4% in November. Excluding food and energy, the core PPI rose 0.3% during January (3.6% y/y), after rising 0.4% in December. (Source, U.S. Bureau of Labor Statistics)
· The Consumer Price Index stubbornly rose 0.5% during January (3.0% y/y), after rising 0.4% during December. The CPI has fallen from a y/y high of 9.1% during June 2022 but has risen from a low of 2.4% in September. Energy prices rose by 1.1% during January (1.0% y/y) after rising 2.4% in December. Food and beverage prices rose 0.4% during January (2.5% y/y) after rising 0.3% during December. The cost of shelter rose 0.4% during January (4.4% y/y), after rising 0.3% during December. Excluding food and energy, the core CPI rose 0.4%, after rising by 0.2% during December. Over the past year the core CPI has risen 3.3% y/y, well below the peak of 7.6% in February 2022. (Source, U.S. Bureau of Labor Statistics)
· Mortgage Rates according to the Federal Home Loan Mortgage Corporation (FreddieMac), “the 30-year fixed-rate mortgage continued to inch down this week, reaching its lowest level thus far in 2025. Recent mortgage rate stability is benefitting potential buyers, as purchase demand is stronger than this time last year. This is an indication that a thaw in buyer activity could be on the horizon.” (Source, Federal Home Loan Mortgage Corporation)
Upcoming Economic Reports scheduled to be released this week include the following: on Wednesday, January Housing Starts and Building Permits; on Thursday, the Weekly Report of Initial Claims for Unemployment Benefits and the January Index of Leading Economic Indicators (LEI); and, on Friday, January Existing Home Sales and the final reading on February Consumer Sentiment from the University of Michigan.
We remain in the heart of earnings season. Companies Scheduled to Report Earnings Include – Medtronic (MDT), Cadence Design Systems (CDNS), Analog Devices (ADI), Carvana (CVNA), Booking Holdings (BKNG), Airbus (EADSY), Walmart (WMT), Alibaba (BABA) and Southern (SO) and Constellation Energy (CEG).
General Disclosure:“This presentation is not an offer or solicitation to buy or sell securities. The information contained in this presentation has been compiled from third party sources and is believed to be reliable, but its accuracy is not guaranteed and should not be relied upon in any way, whatsoever. Fagan portfolio characteristics and holdings are subject to change at any time and are based on a representative portfolio. Holdings and portfolio characteristics of individual client portfolios may differ, sometimes significantly, from those shown. This information does not constitute, and should not be construed as, investment advice or recommendations with respect to the securities listed.
Additional information including management fees and expenses is provided on our Form ADV Part 2. The actual return and value of an account fluctuate and, at any time, the account may be worth more or less than the amount invested. Bond Investments are affected by interest rate changes and the credit-worthiness of the issues held in the portfolio. A rise in interest rates will cause a decrease in the value of fixed income positions. Past performance results are not indicative of future results.”
