02/24/2025 Market Strategy
What Have You Done for Me Lately?
Stocks Took a Haircut Last Week as Uncertainty Creased Some Brows Among Wall Street Traders
Key Takeaways
- With 86% 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 11.4% from a year earlier on 4.9% revenue growth. Before the season began, Bloomberg put analysts’ expected earnings growth at 7.3%.
- Among the sectors, nine are seeing earnings growth, with six at double-digit rates. Two sectors are seeing earnings declines, with one (energy) at double-digit rates.
- This week, 50 firms are due to report, with another 11 firms scheduled for the week after. About 76% of firms that have reported have beaten analyst estimates.
Stocks wobbled last week even after the S&P 500 had closed at a new record high midweek before tariff risk concerns, unbullish guidance from some corporate chieftains, along with geopolitical worries and dissatisfaction with the Fed’s reluctance to cut rates in the face of stickier than expected inflation soured sentiment towards stocks. The VIX volatility gauge jumped 16.3% on Friday and was up 23.3% higher on the week closing at 18.21. Putting things into perspective, the VIX, --- notwithstanding all the drama expressed by some observers, closed just 4.96% from where it started this year.
As of last Friday, the Dow Jones Industrial Average, the S&P 500, the NASDAQ Composite, the S&P 400 (mid-caps), the S&P 600 (small-caps), and the Russell 2000 (small-caps) had closed respectively lower on the week: 2.5%, 1.7%, 2.5%, 3.0%, 3.6% and 3.7%. On a year-to-date basis, the Dow Industrial Average, the S&P 500, and the NASDAQ Composite ended last week on a year-to-date basis respectively higher by 2.1%, 2.2%, and 1.1%. The S&P 400, the S&P 600, and the Russell 2000 shed their year to date gains to stand respectively off 0.6%, 2.1%, and 1.6%.
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.
The Way You Do the Things You Do
In our view, the likely transience of the levels of uncertainty that have roiled the stateside markets not just early in this year, but throughout last year and the year prior, likely presents yet another opportunity to seek out “babies that get thrown out with the bath water” in market downdrafts so long as the resilience in the economy, business, the consumer, and the labor market persists. Some slowing in these four areas should be expected based on the length of the Fed’s hike cycle, from March of 2022 through September last year, and the newness and slow pace of the rate cut cycle that started last September.
A distinctly different approach to the economy, business, government expenditures, and geopolitical stance by the Trump administration from the Biden administration also adds to the levels of uncertainty that the markets are in the process of digesting along with the Fed’s monetary policy as it moves carefully to a normalization of policy.
An approach steeped in patience and diversification within and among asset classes held in the portfolios of institutional and private investors will likely, in our view, help navigate near-term turbulence.
Change is seldom if ever welcome, and early on the process can be difficult at times to digest.
This week should provide a rich brace of economic data that provides information for investors to ponder across services, manufacturing activity, housing, employment, unemployment, inflation, and consumption. The S&P 500’s Q4 earnings season will provide a number of leading technology companies reporting results that could drive the market out of last week’s funk if they surprise positively and particularly if their managements’ provide positive guidance for what they believe lies ahead.
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