WEEKLY MARKET RECAP WEEK ENDING JANUARY 31, 2025

Dennis
&
Aaron

All of the major averages ended up in the red this past week, except for the Dow Jones Industrial Average, an index weighted more toward cyclical companies, as DeepSeek (see below) entered center stage and tariff talk heated up.  That said, as this past week’s data illustrated, the economy remains strong, inflation is coming down but remains sticky and corporate earnings are robust.  With this in mind, we remain cautiously optimistic (we hate that phrase) and will repeat what we have noted here and elsewhere since November fifth in that “absent a policy mistake from either the Trump Administration or the Fed, we think the downside is limited as earnings growth remains adequate to support rich valuations.  However, we also believe a substantial move to the upside is improbable until we get clarification of President Trump’s economic policies.”

  • China based start-up Deep Seek rattled the technology world last week after it announced that it had developed an Artificial Intelligence (AI) model with capabilities on part or better than those in the United States.  The company also stated that it developed the model at a minute fraction of the cost compared to what U.S. companies are spending.  After being down sharply on Monday because of the news, the NASDAQ battled back throughout the week as more and more experts became skeptical of the numbers put forth by Deep Seek as it relates to dollars as well as the number of Nvidia (NVDA) chips.  Regardless of the veracity of the report, it doesn’t change the end game for this transformative technology.  However, it may change who exactly will be the winners as opposed to the losers.
  • The Fed holds rates steady.  At the conclusion of its’ regularly scheduled two-day policy meeting this past Wednesday, the Open Market Committee of the Federal Reserve (FOMC) decided to stand pat on interest rates noting that “the unemployment rate has stabilized at a low level in recent months and labor market conditions remain solid.  Inflation remains somewhat elevated.”
  • Corporate earnings remain robust as according to Edward Jones, “for the quarter, S&P 500 earnings are on track to grow roughly 12%, which, if achieved, would be the strongest pace since 2021.  Earnings growth is expected to be broad as well, with seven of the 11 sectors forecast to report higher earnings.”

It’s The Economy…”

  • According to the Department of Labor, the Employment Cost Index, a “measure of quarterly changes in compensation costs, which include wages, salaries, and employer costs for employee benefits for civilian workers (non-farm private and state and local government)” rose by 0.9% during the fourth quarter, following an increase of 0.8% during Q3-2024.  The ECI has risen by 3.8% y/y.  The wages & salaries component (70% ofECI)rose by 0.9% during Q4 vs. 0.8% during Q2-2024 and as compared to 3.8% y/y.  The cost of benefits rose by 0.8% over the past quarter, after rising 0.8% during Q3-2024 and by 3.6% y/y. (Source, U.S. Bureau of Labor Statistics)
  • The Bureau of Economic Analysis reported that Personal Income rose 0.4% during December (5.3% y/y), after rising 0.3% in November. Personal Consumption Expenditures (PCE), representingapproximately 70% of economic activity rose 0.7% during December (5.7% y/y) after rising 0.6% during November. The consensus was for the PCE to rise 0.5%. Personal Savings(Disposable Personal Income Less Outlays) rose to an annualized rate of 3.8% during December from 4.1% during November. The PCE Chain Price Index rose 0.3% in December (2.6% y/y) following a rise of 0.1% during November.  Excluding food and energy, the Core PCE rose 0.2% during December (2.8% y/y), after rising 0.1% during November. (Source, Bureau of Economic Analysis)
  • Fourth Quarter Gross Domestic Product (first estimate), as reported by the Commerce Department, a tally of the output of all goods and services in the United States, rose at an annualized rate of 2.3%, down from 3.1% during Q3 and as compared to 2.5% y/y.  (Source, U.S. Bureau of Economic Analysis)
  • The Conference Board’s Consumer Confidence Index fell to 104.1 (-6.1% y/y) during January from 109.5 in December.  The present situation index fell to 134.3 in January from 144.0 (-13.3% y/y) while the expectations component fell to 83.9 during January from 86.5 during December (2.9% y/y). Those surveyed saying that jobs are “hard to get”rose to 16.8% of respondents during January as compared to 14.9% in December while those claiming that jobs were “plentiful”fell to 33.0% from 37.1% over those same months.
  • The Census Bureau reported that Sales of New Homes rose 24,000 during December to a Seasonally Adjusted Annualized Rate (SAAR) of 698,000 from 674,000 during November (6.7% y/y).  Sales of New Homes have fallen by 32.30% from their peak of 1.031 million in October 2020 and 45.43% from the peak in July 2005 of 1,279,000 units.  According to Haver Analytics, “the median sales price of a new homerebounded 6.1% (2.1% y/y) to $427,000 in December after a 5.4% decline to $402,500 in November.  It was the highest price in nine months but has fallen 7.2% since its October 2022 peak of $460,300.  The average sales price of a new homejumped 5.9% (4.2% y/y) to $513,600 in December following a 7.8% November decline.  The average price was 5.1% below a high of $541,200 in July 2022.  These sales prices are not seasonally adjusted.(Source; U.S. Census Bureau)

Upcoming Economic Reports scheduled to be released this week include the following: on Monday, December Construction Spending; on Tuesday, December Factory Orders and the December Job Openings and Labor Turnover Survey (JOLTS); on Wednesday, December Trade Balance; on Thursday, the Weekly Report of Initial Claims for Unemployment Benefits; and, on Friday, January Non-Farm Payrolls; January Unemployment and December Consumer Credit.

We remain in the midst of earnings season.   Companies Scheduled to Report Earnings Include –Clorox (CLX), Advanced Micro Devices (AMD), Alphabet (GOOG), Amgen (AMGN), Merck (MRK), PepsiCo (PEP), Pfizer (PFE), Emerson Electric (EMR), Walt Disney (DIS), Amazon (AMZN), Bristol Myers (BMY), Eli Lilly (LLY), Hershey (HSY) and Honeywell (HON).

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.”

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