January 17, 2025 | Pain Trade

MARKETS

S&P 500: Up +59 points to 5997, VIX: 15.58

Asia: Japan -0.31%, China +0.18%, Hong Kong +0.31%

Europe: Euro Stoxx 50 +0.76%, FTSE +1.57%, DAX +1.15%

FX: USD (DXY) up 0.08%, EUR up 0.01%, GBP down 0.37%, JPY down 0.62%, CNY up 0.06%

Energy: WTI Crude down 0.78% to $78.07, Brent down 0.62% to $80.78

Cross markets: Terminal rate unch at 4.33, Implied rate cuts 2-years from terminal up ~4bp at 62bp, 2/10 yield spread +34bp

Treasuries: 2-year yields up ~3bp at 4.262%, 10-year yields down ~1bp at 4.605%, 30-year yields down ~2bp at 4.839%

WHAT WE'RE THINKING

Snapshot: US equities are higher with the S&P 500 (SPX) clearing a near-term technical hurdle at ~5960.??The equal-weight S&P trades well as market breadth continues to improve on a pullback in yields following Wednesday’s cooler CPI print.??Regional banks outperform this morning after TFC beat estimates on better NII and fee income.??Semis outperform with INTC higher on M&A speculation and QRVO lifts on reports that activist investor Starboard has built a 7.7% stake. SLB is an earnings-driven upside standout with OFS peers BKR and HAL higher in sympathy. Travel/leisure stocks also outperform, while transports lag after JBHT guided Q1’25 operating income below the street.??Treasury yields are mixed with curve flattening after 30-year yields touched 5% on Tuesday.??The Dollar Index is higher after a gentle 3-day pullback.??Copper prices tick lower after a 2-week advance, while gold and WTI are little changed.??

• Bullish macro data and a solid batch of overnight earnings reports drive equities higher this morning.??
• December housing starts beat consensus with its highest print in 10 months and building permits also beat.??December?industrial production?and capacity utilization numbers were also higher than expected.
• Cleveland Fed President?Hammack said there’s still an inflation problem that needs to be addressed as the Fed enters its blackout period this weekend ahead of the January 29 FOMC meeting.??
• Markets will be closed for the US holiday on Monday during Trump's inauguration where some expect him to make cryptocurrency a White House priority.??Bitcoin is higher this morning and testing the all-time high from December 16.
• Overseas data/developments included a surprise decline in December UK core retail sales, while China data including Q4 GDP and December retail sales/industrial production all came in ahead of expectations. Reports also cite signs of stabilization in China home prices. And Yemen's Houthis announced they will pause Red Sea attacks following the Gaza ceasefire.??
• Other earnings-driven outperformers include CFG, FAST, OZK and WBS, while RF and STT pull back after reporting.

Inaugural: Heavy money market inflows to start the year suggest investor caution into an expected avalanche of executive orders on immigration and tariffs following Monday’s inauguration.??These two items are the easiest to address but also relatively unpopular from a market perspective.??But while lower immigration generally leads to slower growth and tariffs come with a temporary inflation impulse, it’s also important not to lose sight of the pro-growth/pro-cyclical parts of the agenda where there’s reason to be optimistic.??Tax reform is always hard to pull off, but deregulation in the current environment should be relatively easy.??

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Chartist: The Russell 2000 (RTY) and S&P 500 (SPX) triggered momentum divergence buy signals at the close on Monday while both indices were in short-term oversold territory.??The signals generally align with a month-long period of mean reversion, which should carry markets into a wide-open corporate buyback window.??The largest source of equity demand in 2025 will likely be corporate buybacks for a second year after record authorizations in 2024.??The corporate buyback window begins to reopen next week with the week of 1/27 open to 45% (peak) of the S&P 500 by market cap.

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Cyclical/value: It’s important to keep an eye on a potential pro-cyclical rally because it would likely lead to some unwinding of crowded trades – namely in mega-cap Mag 7 stocks.??Our early-warning indicators include the relative performance of the RTY/Nasdaq 100 (NDX) and the copper/gold futures ratio.??In July, the RTY finally broke out of multi-year range resistance, but the move ultimately failed without a rise in copper prices.??In our view, a legitimate/lasting pro-cyclical rotation requires a simultaneous and sustained breakout in RTY and copper.??The RTY should outperform the SPX in this expected month-long mean reversion and copper prices have been advancing, but the two markets have a long way to go.??The RTY/NDX ratio also flashed a breakout (above 0.116) in late November before retreating to the lower levels of the 2024 range. More soon…

FACT OF THE DAY

In 2015, Trigueros del Valle (small town in Spain) voted to recognize cats and dogs as citizens.

JSC IN THE MEDIA

Consumer Confidence Falls: Andrew joins Bloomberg Businessweek to discuss market outlook for 2025. Skip ahead to the 7:56 mark for Andrew’s commentary. Listen Now

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Outlook for Mag 7: Andrew joins a Schwab Network panel to discuss the narrowing gap between the Magnificent 7 and the rest of the S&P 500. Watch Now

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Markets react as tensions rise in the Middle East: Andrew comments on recent events in the context of a market that is richly valued and therefore more sensitive to shocks of all kinds. Read on Reuters

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See more of JSC in the Media.

THIS DAY IN HISTORY

January 17, 1916: The Professional Golfers Association (PGA) was formed in New York City. Rodman Wanamaker, son of the founder of Wanamaker’s department stores (now Macy’s), invited a group of players and other representatives of golf to the Taplow Club in NYC for exploratory meetings to create an official organization and promote interest in the game. There, Wanamaker proposed the idea of an annual tournament and offered to donate money for a trophy and price, leading to the first PGA championship.

CATALYST CALENDAR

Next week: 1) Trump inauguration Monday; 2) Japan Flash PMI for Jan Friday; 3) Davos World Economic Forum annual meeting all week. Earnings Highlights: 1) Tuesday AM: DHI, FITB, KEY, MMM, PLD, SCHW. 2) Tuesday PM: COF, NFLX, STX, UAL. 3) Wednesday AM: ABT, APH, GEV, HAL, JNJ, PG, TEL, TRV; 4) Wednesday PM: AA, DFS, KNX, SLG, STLD; 5) Thursday AM: AAL, ALK, FCX, ELV, GE, UNP; 6) Thurs night: CSX, ISRG, TXN; 7) Friday PM: AXP, HCA, VZ. EU Earnings: Burberry, Ericsson, Signify.?

Jackson Square Capital produces Inside Markets. We also offer financial planning and investment management services. Learn more here and catch up on our recent media appearances.

Investment Advisory Services offered through Jackson Square Capital, LLC, a Registered Investment Advisor with the U.S. Securities and Exchange Commission.

This material is intended for informational purposes only. It should not be construed as legal or tax advice and is not intended to replace the advice of a qualified attorney or tax advisor.