Weekly Market Commentary January 27th 2025 to January 31st 2025
The market processed a substantial amount of information this week. It included updates from the Federal Reserve and Jerome Powell, Fourth Quarter GDP figures, Personal Consumption Expenditures (PCE) and a significant wave of corporate earnings reports from major technology companies.
The Federal Reserve decided to maintain interest rates at a range of 4.25% to 4.50%, following three consecutive cuts that reduced the benchmark rate by a full percentage point. The committee noted the resilience of the labor market and acknowledged that inflation is making strides toward their 2% target. This decision aligned with the consensus among traders and the market remains unwavering in expecting two rate cuts in 2025. The prevailing message was that while progress is being made, there is still work to be done.
PCE increased by 0.2% for the month, resulting in a monthly inflation rate of 2.6%. When excluding food and energy, Core PCE recorded a reading of 2.8%. Although these figures are higher than the previous month, the Federal Reserve is content with the current trajectory of inflation. Many of the committee members stated that they are not concerned about any particular month and mentioned uncertainties surrounding President Trump’s fiscal policy on the path of inflation. Later Friday afternoon, we received an update on tariffs that are set to take effect on Saturday. Goods imported from China may be subject to a 10% tariff, while those from Mexico and Canada may face tariffs of 25%.
Although Gross Domestic Product (GDP) accelerated by 2.3% in the fourth quarter, it fell short of the 2.5% forecast. Consumer spending grew at a very robust rate of 4.2% but Trade was the largest growth deterrent with a 0.8% decline. If there are no revisions to this number in the upcoming months, the U.S. economy will have grown at 2.8% in 2024.
The market witnessed a significant influx of earnings reports from major companies including Meta Platforms, Tesla, Apple, and Microsoft. For the fourth quarter, earnings are projected to increase by approximately 13%, marking the sixth consecutive quarter of growth and resulting in an overall increase of 9% for the calendar year. While earnings results have shown some divergence, the overall sentiment remains positive.
Equity markets were relatively calm despite individual companies experiencing volatility. The S&P 500 finished the week at 6,041, down nearly 1% from last week while the Nasdaq was -1.6% lower at 19,627. The Dow was able to finish slightly higher at 44,544. In the fixed income markets, the 10-Year U.S. Treasury finished the week 0.08% lower at 4.54%.
