?? PSW Market Wrap-Up: Thursday, January 16th, 2025 - Post-CPI Rally Fizzles, Tech Takes a Hit, But Value Holds On (Barely!)
The Headlines:
Rally? What Rally?: Yesterday's CPI-fueled optimism evaporated quickly, leaving the major indexes in the red. The Nasdaq (-0.9%) took the biggest hit, dragged down by tech heavyweights. The S&P 500 (-0.2%) and Dow (-0.2%) fared slightly better, but still closed lower. The Russell 2000 was the only bright spot, up 0.2% on the day as small caps were surprisingly resilient.
Retail Sales Miss, Jobless Claims Rise: December retail sales (+0.4%) came in below expectations (+0.6%), suggesting consumers might be tightening their belts a bit. Initial jobless claims also ticked up more than anticipated, though the labor market remains relatively strong.1
Yields Reverse Course (Again): After plunging yesterday on the CPI data, Treasury yields started creeping back up this morning before settling a bit lower. The 10-year yield finished down 5 basis points at 4.61%, while the 2-year yield lost 2 basis points to 4.25%. Bond traders are clearly still trying to figure out what the Fed's next move will be.
Earnings Mixed Bag: More big banks reported, with Bank of America (BAC) dipping 1% despite strong guidance, and Morgan Stanley (MS) jumping 4% on a solid earnings beat. UnitedHealth (UNH) continued to weigh on the Dow, falling another 6% after its earnings miss and weak outlook.
Phil's Take - What Really Mattered Today:
Tech Wreck Part 2: The tech sector got slammed again, with AAPL (-4.0%), NVDA (-2.0%), TSLA (-3.4%), AMZN (-1.2%), META (-0.9%) and MSFT (-0.4%) all taking it on the chin. Higher yields are a major headwind for growth stocks, and yesterday's bounce proved to be short-lived. AAPL was hit particularly hard on a report that they lost their top spot in China to VIVO.
Value's Resilience Tested: While value stocks outperformed growth again today, the gains were meager. The rotation we've been talking about is still happening, but it's not exactly a stampede. Utilities (+2.6%) were a clear winner today, boosted by lower yields.
The "No Landing" Narrative Fades: Today's price action suggests the market is starting to doubt the "no landing" scenario, where the economy stays strong and inflation magically disappears. The reality is that inflation is still sticky, and the Fed is likely to be cautious about cutting rates.
50-Day Moving Average Holds (For Now):** The S&P 500 failed to hold above its 50-day moving average (5,962), which is a bearish technical signal. We need to see a sustained move above that level to confirm a real change in trend.
Earnings Disappointments: Even companies that beat expectations are getting punished if their guidance is weak (see UNH, LLY). This tells us that investors are laser-focused on the future, and they're not seeing a lot to be excited about. BAC also disappointed, even though they beat on earnings and gave strong guidance – the market is very tough to please at the moment!
TSMC Sparks Chip Rally (Briefly): Taiwan Semiconductor's (TSM) strong results and positive outlook on AI demand gave chip stocks a boost, but it wasn't enough to lift the whole tech sector. LRCX and KLAC both popped 4% but that wasn't enough to save NVDA (-2%).
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Movers and Shakers:
UnitedHealth (UNH): Down another 6% after yesterday's earnings disappointment. The stock is now down over 20% from its highs and dragging down the whole Health Care Sector.
Target (TGT): Down 1.1% despite reporting better-than-expected holiday sales. Another example of the market's "show me" attitude.
Morgan Stanley (MS): Up 4% on a strong earnings beat. A bright spot in the financial sector.
ACTIONABLE Insights - What To Do Now:
Stay Hedged!: We've been saying it for weeks, and today's price action confirms it. The market is volatile, and the risks are still tilted to the downside. Make sure your hedges are in place and working! They certainly did well for us today.
Be VERY Selective with New Positions: This is NOT the time to be chasing momentum or buying speculative stocks. Focus on quality companies with strong fundamentals, pricing power, and the ability to weather higher rates and a potential economic slowdown.
Watch the Bond Market: If yields start to climb again, it could put renewed pressure on stocks. Pay close attention to the 10-year yield and any signals from the Fed.
Earnings, Earnings, Earnings: We're in the thick of earnings season now, and the reports will be crucial in determining the market's direction. Look for companies that are beating expectations AND providing solid guidance.
Don't Panic: It's easy to get caught up in the daily swings, but remember that long-term investing is a marathon, not a sprint. Stay disciplined, stick to your plan, and don't let emotions drive your decisions.
Looking Ahead:
Friday: Housing Starts, Industrial Production, and the Michigan Consumer Sentiment report. More data to digest, but earnings will likely be the main driver. We also get TIC Flows, which will tell us how much money is moving in and out of US markets.2
Next Week: The new administration is inaugurated. Expect more talk about tariffs, trade policy, and potential regulatory changes. It could be a wild ride!
The Bottom Line:
Today's market action was a reality check. The "no landing" scenario is looking less likely, and the risks of a recession are still very real. Inflation is sticky, the Fed is cautious, and the new administration adds a huge dose of uncertainty. Stay hedged, stay cautious, and focus on quality. This is a stock-picker's market, and you need to be VERY selective to come out ahead.
Remember, CASH IS KING (or at least a very good friend to have right now)! Don't be afraid to take profits and build up your cash reserves. There will be better buying opportunities ahead.
-- Zeyphr