02/18/2025 Market Strategy
The Times They Are A-Changin’ (Again)
The Efforts of the Trump Administration Are Ruffling Feathers
Key Takeaways
- With 77% of the firms in the S&P 500 index having reported, results are exceeding expectations for the Q4 season with earnings reported so far rising 10.4% from a year earlier on 5.1% revenue growth. Before the season began, Bloomberg put analysts’ expected earnings growth at 7.3%.
- Among the sectors, eight are seeing earnings growth, with six at double-digit rates. Three sectors are seeing earnings declines, with two at double-digit rates.
- This week, another 44 firms are due to report, and another 57 firms are scheduled for the week after. About 75% of firms that have reported have beaten analyst estimates.
- Last week’s CPI and PPI data exceeded expectations but also included revisions to seasonal factors, which reduced the past reported price rises that were so worrisome over the summer months and may have boosted January’s results. Retail sales were weak but affected by storms and wildfires.
Traders and investors find a holiday abridged week awaiting them with a brace of key economic data and S&P 500 Q4 results across several key sectors and widely followed names to ponder and act on over the course of a four day week.
Last week found stocks bouncing between gains and losses as market participants pondered the effects of hotter than expected inflation data reflected in the CPI and PPI numbers against softer than expected sales data and fourth quarter S&P 500 earnings that persisted in beating expectations.
As the week came to a close on Friday the softer economic data at the latter part of the week just ended offset the earlier released hotter data sufficiently--along with earnings results reported--to deflect negative sentiment that had emanated from the bearish corners of the market for the Dow Jones Industrial Average, the S&P 500, and the NASDAQ Composite to close the week with respective gains on the week of: 0.6%, 1.5% and 2.6%.
Mid-cap and small cap stocks underperformed the large caps, likely jostled by concerns that the Fed could take longer to cut interest rates than some would like. The result could best be described as performance on the week that was mostly “flat with a negative bias” with the S&P 400 and the S&P 600 off 0.25% and 0.10% respectively while the Russell 2000 managed to edge just 0.01% higher on the week.
Fixed income appeared to us to take a “wait and see” approach to it all with the yield on the 10-year US Treasury note easing just 2 basis points to 4.48% over the course of the week.
Change Can Bring Opportunity
In Washington the Trump Administration kept shaking up the status quo left by the Biden administration as hearings on the Hill to approve a new cabinet moved along and the new Administration’s approach to reign in the high cost of government, secure the US borders, and spark productivity growth rattled more than a few feathers on whichever sides of the political aisle costly bureaucratic structures have become ensconced.
So far, the markets stateside and abroad appear to be rightsizing expectations and reflecting that a significant change in direction of policy takes time to digest and at some level is more welcomed by constituencies across borders than the daily headlines might suggest.
If anything “the times they are a-changin’” seems to us to apply on multiple levels as economic resilience and the ability of business and the consumer to navigate changes towards a normalization of monetary policies stateside and around the world are aided by tail winds from innovation.
On another level, the possibility of successful negotiations to reduce at least some of the geopolitical tensions that pressure the world appear to be surfacing in the day to day news flow.
In our view, investors should continue to consider rightsizing expectations via prudent diversification that serves their needs, objectives, and tolerance to risk to best benefit from the opportunities that present themselves in the world as it is while navigating periods of volatility which may appear in the day to day to changes taking place. In our experience, getting from point to point in life and the markets is seldom easy but can be rewarding when addressed with discipline and patience.
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