Cela's Weekly Insights - February 2, 2025

The financial markets faced a whirlwind of activity this past week, marked by sharp swings in major indexes, heated trade war rhetoric, and crucial earnings reports from tech giants. While investors grappled with uncertainties surrounding AI competition, Federal Reserve policy, and geopolitical tensions, volatility remained a defining theme. The Nasdaq saw particularly turbulent trading, swinging between steep losses and partial recoveries as sentiment wavered. Meanwhile, the broader Standard and Poor’s 500 and Dow Jones moved in response to shifting risk appetite, economic data, and earnings results.

AI Disruptions and Tech Turbulence

A major development in the AI space sent shockwaves through tech stocks. Chinese startup DeepSeek unveiled an AI model that claims to operate with lower costs while delivering performance on par with leading U.S. models. This revelation spurred investor concerns over whether U.S. tech giants can sustain their AI-driven growth momentum. The impact was immediate, with Nvidia—a key player in AI computing—plunging nearly seventeen percent at one point before staging a partial recovery. Other semiconductor stocks, including ASML and Broadcom, also faced selling pressure.

Despite these initial losses, the tech sector attempted a rebound. Nvidia, which had suffered a staggering $589 billion market cap decline in one session, managed to recover some ground as investors reassessed its long-term AI prospects. Meanwhile, Microsoft, Meta, and Tesla reported earnings, providing further clarity on sector health. Microsoft exceeded revenue expectations but faced challenges in cloud computing, leading to a sell-off. Meta posted strong results, highlighting its ad revenue growth, while Tesla’s earnings failed to excite investors looking for a stronger growth outlook.

The Federal Reserve Stays Put

The Federal Reserve’s first policy decision of the year was highly anticipated, but it ultimately left interest rates unchanged in the range of 4.25% to 4.50%. However, a subtle yet significant change in the Fed’s language caught the market’s attention. In its previous statement, the Fed had noted that inflation was moving toward its 2% target, but this time, it simply stated that inflation remains “somewhat elevated.” While Chair Jerome Powell downplayed the change as a minor language tweak, the omission led to speculation about whether policymakers were adjusting their stance in response to economic conditions.

Additionally, the latest U.S. GDP report showed that the economy grew at an annualized pace of 2.3% in the fourth quarter, slightly below expectations. Though the economy remains on a steady footing, uncertainties regarding inflation and future monetary policy moves persist. The core Personal Consumption Expenditures (PCE) index—the Fed’s preferred inflation measure—came in as expected at 2.8% year over year, reinforcing expectations that rate cuts may not arrive before mid-year.

Trade War Tensions Escalate

Geopolitical concerns took center stage as the White House announced sweeping new tariffs on key trade partners. Investors were caught off guard by the decision to impose 25% tariffs on imports from Mexico and Canada, as well as 10% tariffs on goods from China. This marked a significant escalation in trade tensions, stoking fears of inflationary pressures and supply chain disruptions. Trump also issued a warning to BRICS nations, threatening 100% tariffs if they move forward with plans to adopt a joint currency in place of the U.S. dollar. The dollar surged on the news, posting its best weekly performance since November.

The equity markets reacted negatively, with all three major indexes closing lower on the final trading session of the week. The S&P 500 ended with a weekly loss of 1%, while the Nasdaq 100 dropped 1.36%. The Dow Jones managed a modest 0.3% gain, reflecting investors’ rotation into more defensive sectors amid rising uncertainty.

As the market digests earnings results, central bank signals, and trade policy developments, investors remain on edge. With AI competition heating up, monetary policy in flux, and geopolitical risks looming, volatility is unlikely to subside anytime soon. The coming weeks will be crucial in determining whether the market can regain its footing or if further turbulence lies ahead.

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Cela’s Weekly Insights Indicator

That's all for today, folks. For more insights, be sure to join me every weekday morning on my podcast, Capital Markets Quickie, where I break down the most important news and events in the markets.

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Endrit Cela The Investment Fella - ECB, mm, 411 ??