WEEKLY MARKET RECAP WEEK ENDING FEBRUARY 7, 2025

A drop in the Unemployment Rate, a resilient labor market and rising concerns regarding inflation (all see below) as reported by Friday’s Payroll Report and Consumer Sentiment Index, put downward pressure on both stocks and bonds and as a result, pushed the major equity averages fractionally into the negative this past week. Also, because of the above, after a rally over the last three weeks, bonds also sold off, moving interest rates a bit higher. In our opinion, stocks should be supported from a meaningful downturn by strong earnings, but also limited to the upside until the dust settles a bit in Washington.

· Not a bad quarter. According to data analytics company FactSet, as of Friday, “for Q4 2024 (with 62% of the S&P 500 companies reporting actual results), 77% of S&P 500 companies have reported a positive EPS [Earnings Per Share] surprise and 63% of S&P 500 companies have reported a positive revenue surprise.” FactSet also noted that “the blended year-over-year earnings growth for the S&P 500 is 16.4%. If 16.4% is the actual growth rate for the quarter, it will mark the highest year-over-year earnings growth rate reported by the index since Q4 2021.”

· Mag 7 ramp up capital expenditures in anticipation of Artificial Intelligence. Within their earnings, Amazon announced that capital expenditures during 2025 would approach $100 billion. This follows reports from Microsoft at $75 billion Google parent Alphabet at $75 billion and Meta at $60 billion. All except Meta are spending these massive amounts on data centers, believed necessary to handle the computing needs as AI is rolled out.

· U.K. and India Central Bank Cut Interest Rates. Citing “substantial progress on disinflation over the past two years,” the Bank of England cuts its key lending rate by 0.25% to 4.50%. On Friday the Reserve Bank of India cut rates for the first time in five years, lowering by 0.25% to 6.25%. The RBI noted that the bank’s priorities have “tilted from containing inflation to providing more support for the economy.”

· For its most recent quarter, Amazon posted revenue of $187.8 billion, an astonishing amount and even more impressive given that for the first time ever, revenue at this retailer/web service company exceeded that of Walmart. Apple at $124 billion and United Health at $101 billion are the only other S&P 500 companies with revenues that exceed $100 billion. Walmart still outpaces Amazon in sales. ?

"It’s The Economy…”

· Non-Farm Payrolls (approximately 80% of the U.S. workforce) rose by 143,000 during January, slightly below the consensus estimate of 165,000. Payroll numbers for the prior two months were revised to 307,000 and 261,000 from 256,000 and 212,000 during December and November, for a net gain of 100,000. The Unemployment Rate ticked down to 4.0% during January from 4.1% one month prior. The Unemployment Rate had gotten as low as 3.4% in April 2023. Average Hourly Earnings rose 0.48% to $35.87 during January and by 4.06% y/y. Average Weekly Earnings rose $2.23 to $1,223.17 during January and by 3.76% y/y. The Average Duration of Unemployment (SAAR) fell to 22.0 weeks in January from 23.7 weeks in December, above the 19.5 weeks recorded one year ago. (Source, U.S. Department of Labor)

· The University of Michigan reported that the Preliminary February Reading of Consumer Sentiment slipped to 67.8 from a final January 71.1 as well as from a preliminary January 73.2. The preliminary February expectations component fell to 67.3 from the final January 69.3 and from a preliminary January 70.2. Lastly, the preliminary February current conditions component fell to 68.7 from a final January 74.0 and from a preliminary January 77.9. According to the Survey of Consumers Director, Joanne Hsu, “consumer sentiment fell for the second straight month, dropping 5% to reach its lowest reading since July 2024. The decrease was pervasive, with Republicans, Independents and Democrats all posting sentiment declines from January, along with consumers along age and wealth groups. Further along Hsu noted that “year-ahead inflation expectations jumped from 3.3% last month to 4.3% this month, the highest reading since November 2023 and marking two consecutive months of unusually large increases.” (Source, University of Michigan)

· The Institute for Supply Management’s composite index of non-manufacturing (service) sector activity fell to 52.8% during January from 54.0% in December. On a positive note, the Prices Paid Component fell to 60.4% during January from 64.4% during December. According to Steve Miller, Chair of the Institute for Supply Management Services Business Committee, “fourteen industries reported growth in January, five more than the previous month’s total. The Services PMI has expanded in 23 of the last 25 months dating back to January 2023.” (Source, Institute for Supply Management)

· The Institute for Supply Management’s composite index of manufacturing sector activity rose to 50.9 during January as compared to 49.2 in December. Generally, a reading above 50% indicates that the manufacturing economy is expanding, below indicates one in contraction. Employment strengthened (50.3% v. 45.4%) as the Prices Paid Component rose to 54.9% during January from 52.5% during December. (Source, Institute for Supply Management) ?

Upcoming Economic Reports scheduled to be released this week include the following: on Wednesday, Retail Inflation as measured by the Consumer Price Index (CPI); on Thursday, the Weekly Report of Initial Claims for Unemployment Benefits and Wholesale Inflation as measured by the Producer Price Index (PPI); and, on Friday, January Retail Sales, January Industrial Production, January Capacity Utilization and December Business Inventories.

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We remain in the heart of earnings season. Companies Scheduled to Report Earnings Include – AutoNation (AN), Gilead sciences (GILD), Coca-Cola (KO), Biogen (BIIB), Dominion Energy (D), Applied Materials (AMAT), Deere (DE), Duke Energy (DUK), GE Healthcare (GEHC) and Zoetis (ZTS).

General Disclosure:

“This presentation is not an offer or solicitation to buy or sell securities. The information contained in this presentation has been compiled from third party sources and is believed to be reliable, but its accuracy is not guaranteed and should not be relied upon in any way, whatsoever. Fagan portfolio characteristics and holdings are subject to change at any time and are based on a representative portfolio. Holdings and portfolio characteristics of individual client portfolios may differ, sometimes significantly, from those shown. This information does not constitute, and should not be construed as, investment advice or recommendations with respect to the securities listed.

Additional information including management fees and expenses is provided on our Form ADV Part 2. The actual return and value of an account fluctuate and, at any time, the account may be worth more or less than the amount invested. Bond Investments are affected by interest rate changes and the credit-worthiness of the issues held in the portfolio. A rise in interest rates will cause a decrease in the value of fixed income positions.?Past performance results are not indicative of future results.”