Weekly Commentary

January 31st, 2025

Stocks had a volatile week, as markets digested surprises from the AI world, the FOMC meeting, and corporate earnings that were generally positive, as well as executive actions and the threat of tariffs from the Trump administration.? The week started off very badly, as the Chinese AI upstart Deepseek announced that its AI programs were able to compete with the "big boys" at a fraction of the cost of Nvidia chips, causing US-based chipmakers to plummet and markets to question the big spend projections of major chip consumers such as Microsoft and Meta.? Nevertheless, markets showed a great deal of resilience, especially in traditional, non-AI companies (i.e. Dow Jones) as well as the small and mid-caps (i.e. Russell 2000).? For its part, rates were mostly flat for the week, with the benchmark 10-year rate hovering around the 4.55% mark.??

Overall, we are encouraged by the market this week, as major indexes showed that in spite of the AI headwinds, stocks continue to show resilience and even advance.? Additionally, the FOMC gave no major surprises, and while rate cut expectations are for one to three cuts for the remainder of the year, inflation expectations do seem to be anchored and no major blowout to the upside in rates is expected.? Trump's trade policy has also provided for a certain amount of optimism, as tariffs seem to be more targeted in nature, and the government has allowed for a face-saving offramp, especially for the proposed tariffs on Canada and Mexico, which could be announced as early as this weekend.? Therefore, we remain neutral on stocks, high yield, and other credit and are encouraged by the calmness in the treasury market.? The next weeks should also provide for clarity on the fiscal front, so we do see more value in duration, and would have a hold recommendation on longer duration (i.e. do not sell) given the trend.??