By Pete Biebel, Senior Vice President, Senior Investment Strategist
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Despite getting sacked on the openings on the past two Mondays, the stock market has been racking up points on most of its possessions lately. Two weeks ago, it was the Deep-Seek news that blitzed the market and was responsible for the early-week loss. Last week, it was the initial threat of tariffs on imports from Canada, Mexico and China that brought the market to its knees. Yet, even after fumbling the opening kickoff, the market recovered from significant early losses to end both weeks with relatively small net changes.
Last week was an instant replay of the previous week. The opening losses on each Monday dropped the indices to what would prove to be their lows of the week. In both weeks, the averages quickly recovered much of the early losses. It was as if a quarterback sack had been erased by a defensive penalty. In both weeks, the averages sustained strong offensive drives from the Monday lows to the Friday morning highs of the week, only to give back much of the week’s recovery on Friday afternoon.
For the week, the S&P 500 Index (SPX) slipped a scant 0.24%, following a 1% loss in the prior week. SPX was finally able to exceed its December high two weeks ago when it peaked just over 6128. The two subsequent weekly highs, which came on the last two Fridays, ran out of gas at slightly lower levels. The NASDAQ Composite Index (COMP) was down a little more than twice as much as SPX, losing 0.53% for the week, about a third of its 1.64% decline a week earlier. COMP’s record high was in mid-December, just above 20,200. It rallied back to near that level in both late-December and late-January, but more recent attempts have fallen well short of that mark. The Dow Jones Industrial Average (DJIA), which managed to post a 0.27% gain in the prior week, fell 0.54% last week. DJIA’s record high was more than two months ago (on December 4, 2024 at 45,073.63), but here too, the most recent rally attempts have failed to reach the record level.
Recently lagging sectors were among the best performers last week. Based on the performance of the S&P Sector SPDRs, real estate (+1.33%), technology (+0.87%) and consumer staples (+0.47%) are among the four top sectors last week. The fourth of that quartet is financials (+0.68%). That sector, along with communication services (+0.35% last week) are the only sectors that have been able to print new highs in recent weeks. Most of the other sectors aren’t even in the ballpark.
And that, sports fans, brings us to our theme of the week. The market’s bullish enthusiasm following the election and surrounding the inauguration has clearly faded. The recent offensive drives have failed to score. The brawny, all-pro Magnificent Seven stocks, which had previously overpowered the defense, enabling the bulls to march down the field, are showing signs of exhaustion. The most recent attempts at progress have come up short. The week ahead may be the bulls’ last chance to push the indices over the goal line. Will the bulls retain control of the ball, or will the bears force another turnover before the bulls can put more points on the board?
Bullish investors have been banking on getting a “tush push” from improving corporate earnings in the current earnings season. With the broad market at an already very expensive valuation in terms of the forward price-to-earnings ratio, the market’s current dividend yield and the near-record low of the equity risk premium, the playbook says that stocks absolutely need big earnings growth to justify current prices, let alone any future increases. So far, so good. With most of the fourth-quarter (Q4) earnings already reported, aggregate S&P earnings are up about 12% over Q4 2023, well above the consensus expectation of about 8% year-over-year growth. S&P’s full-year 2024 earnings per share will be right around $241, compared to just under $220 in 2023. With SPX at 6026, it’s valued at 25 times 2024 earnings and 22.5 times the 2025 estimated earnings per share (EPS) of $268. That’s expensive; and that means that any economic, corporate or fiscal developments that would force a reduction in the 2025 earnings could be especially damaging for stock prices.
In a report published on Friday, Goldman Sachs notes that, “Earnings revisions appear to have inflected lower over recent weeks and earnings revision sentiment has fallen into negative territory. Tariffs are a key downside risk to our 2025 EPS forecast. Our economists expect tariff policies will raise the effective tariff rate by 5 pp. We estimate that every 5 pp increase in the US tariff rate would reduce our 2025 S&P 500 EPS estimate by roughly 1-2% and lower our estimated EPS growth rate by approximately 1 pp (to 10%). Heightened policy uncertainty represents downside risk to valuation because it raises the equity risk premium and implies downward pressure on fair value.”
SPX ended last week at 6026, about 1.5% below its record high, so it wouldn’t take a Hail Mary play to reach a new high, just another solid gain. But if the bulls fail to move the ball and are forced to punt, then we’ll need to keep an eye on a couple important lower levels on SPX. Friday’s close was just 0.4% above the 50-day moving average (6001). Falling below the 50-day would shift momentum to the bears. Below that, the critical level is 5924, last Monday’s low. Sustained trading below that level would strongly indicate that the market had seen a significant intermediate-term high.
The MVPs of this week’s economic report calendar will be the Consumer Price Index (CPI) and Producer Price Index (PPI) updates. The numbers are expected to come in within a tick of last month’s readings. Any large deviations from those expectations will trigger at least a short-term reaction in the markets.
In conjunction with the inflation data, the Bureau of Labor Statistics (BLS) will also publish their annual revisions to these key metrics. According to the BLS website, “Each year with the release of the January CPI, seasonal adjustment factors are recalculated to reflect price movements from the just-completed calendar year. This routine annual recalculation may result in revisions to seasonally adjusted indexes for the previous 5 years. Recalculated seasonally adjusted indexes as well as recalculated seasonal adjustment factors for the period January 2020 through December 2024 will be made available on Wednesday, February 12, 2025.”
| Economic Calendar (2/10/25 – 2/14/25) |
Previous |
Consensus |
|
| Monday 2/10/2025 | No Reports Scheduled |
58.5 |
58.5 |
| Tuesday 2/11/2025 | ISM Services, December |
52.1 |
53.4 |
| JOLTS Job Openings, November |
7.744mm |
7.745mm |
|
| Wednesday 2/12/2025 | Consumer Price Index, January, M/M |
+0.4% |
+0.3% |
| CPI ex-Food & Energy, January, M/M |
+0.3% |
+0.3% |
|
| CPI, January, Y/Y |
+2.9% |
+2.8% |
|
| CPI ex-Food & Energy, January, Y/Y |
+3.2% |
+3.1% |
|
| Monthly U.S. Federal Budget, January |
-$22B |
||
| Thursday 2/13/2025 | Initial Jobless Claims |
219K |
217K |
| Continuing Claims |
1,886K |
1,888K |
|
| Producer Price Index, January, M/M |
+0.2% |
+0.3% |
|
| PPI ex-Food & Energy, January, M/M |
+0.1% |
+0.2% |
|
| PPI, January, Y/Y |
+3.3% |
||
| PPI ex-Food & Energy, January, Y/Y |
+3.3% |
||
| Friday 2/14/2025 | Import Price Index, January |
+0.1% |
+0.4% |
| U.S. Retail Sales, January, M/M |
+0.4% |
0.0% |
|
| Retail Sales less Autos, January, M/M |
+0.4% |
+0.3% |
|
| Industrial Production, January, M/M |
+0.9% |
+0.3% |
|
| Business Inventories, December, M/M |
+0.1% |
-0.1% |
|
Links to previously published commentaries can be found at benjaminfedwards.com/Latest Investment Insights/Market Commentary/Market