Everything to Know about Macro and Markets
Friday’s drop – the worst since mid-December – wiped out year-to-date gains, sending indexes into negative territory for 2025. The S&P 500 (SPX) was down by 0.71% for the shortened week, while the Dow Jones Industrial Average (DJIA) dropped by 1.07%. Meanwhile, the tech benchmarks Nasdaq Composite (NDAQ) and Nasdaq-100 (NDX) declined by 0.61% and 0.62%, respectively.
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Economic Strength Raises a “Wall of Worry”
Stocks registered losses for the second straight week following the latest economic data, most of which strongly surprised on the upside. The job market report showed a significant increase in nonfarm payrolls and a decline in the unemployment rate to 4.1% from 4.2%. Meanwhile, the UoM Consumer Sentiment index reflected a rise in inflation expectations, consistent with the price trends within the ISM Services PMI report, which also came in stronger than expected.
The apparent economic resilience, coupled with hints at possible reacceleration in inflation, led investors and analysts to voice concerns that the Federal Reserve may pause rate reductions in the first half of the year. Fed Governor Michelle Bowman said that inflation has risen “uncomfortably above” the Fed’s long-term target, while still presenting stubborn upside risks. Moreover, minutes from the latest central bank meeting echoed this sentiment, indicating an almost unanimous inclination among policymakers to hold the rates steady in January.
The labor data reflected continued wage gains notably higher than the inflation rate, which is a strong positive for consumer sentiment and overall economic growth. At the same time, robust economic activity is supportive of the corporate earnings. However, interest rate concerns outweighed these considerations, and a surge in the benchmark 10-year Treasury yields weighed on stocks.
Will Strong Earnings Save the Rally?
Investor focus will shift to earnings this week with the start of the Q4 2024 reporting season. Large banks are expected to help the season get off to a strong start on Wednesday, with high expectations for net interest income thanks to a steepened yield curve.
The large-cap tech companies – the focal point of investor interest – are not due to report until end-month. However, market participants will have a glimpse into the strength of the sector on Thursday, when the world’s largest and most advanced foundry, Taiwan Semiconductor (TSM), reports its quarterly results.
Overall, earnings reports from the largest U.S. companies from different sectors are expected to come in strong, lifting investor spirits. Thus, FactSet pencils in S&P 500 earnings growth of 11.7% for the fourth quarter, the strongest in three years. However, analysts foresee choppy trading over the next several weeks as investors begin to digest the incoming administration’s policies, particularly tariffs and taxes, along with Federal Reserve’s updates. In addition, high stock valuations are adding to investor anxiety: according to Goldman Sachs, stocks are now “priced for perfection,” opening the door for further volatility.
Stocks That Made the News
▣ Energy stocks were the star of the week, with the sector registering a notable gain as crude oil prices rose for the third week in a row. On the other hand, Real Estate clocked in the biggest loss due to its high rate sensitivity. Only three S&P 500 sectors – Communication Services, Energy, and Healthcare – are in the green year-to-date.
▣ Meta (META) was the only “Magnificent” stock in the green on Friday, following its strategic alignment with the incoming administration’s policies. Last week, the Facebook and Instagram parent announced the termination of its diversity, equity, and inclusion (DEI) initiatives and a roll-back in its content-censoring activities.
▣ Nvidia (NVDA) saw its stock drop along with other chipmakers after Bloomberg reported that the outgoing Biden administration is rushing to impose new AI chip export-ban rules in its final days. Nvidia criticized the last-minute restrictions, saying they would “harm the U.S. economy, set America back, and play into the hands of U.S. adversaries.”
▣ Hewlett Packard Enterprise (HPE) bucked the stocks’ downward trend on Friday on news that the company secured a $1 billion deal to provide AI-optimized servers for Elon Musk’s social network X, which positions the company favorably against competitors in the AI hardware and infrastructure space.
▣ Delta Air Lines (DAL) saw its stock surge after reporting better-than-expected fourth-quarter earnings and issuing a 2025 guidance that exceeded analyst expectations. The airline expects the strong travel demand that boosted Q4 earnings to continue well into 2025.
▣ Constellation Brands (STZ) was the biggest loser in the S&P 500 over the last week, shedding almost 20% of its value. The beer, wine, and spirits maker reported disappointing FQ3 results, with both revenue and EPS missing consensus estimates, and slashed its FY25 outlook.
Upcoming Earnings and Dividend Announcements
The Q4 2024 earnings season is beginning this week, with earnings releases scheduled for JPMorgan Chase (JPM), Citigroup (C), Wells Fargo (WFC), Goldman Sachs (GS), BlackRock (BLK), Bank of New York Mellon (BK), Bank of America (BAC), Morgan Stanley (MS), Schlumberger (SLB), UnitedHealth (UNH), and Taiwan Semiconductor Manufacturing (TSM).
Ex-dividend dates are coming this week for Hormel Foods (HRL), AbbVie (ABBV), Abbott Laboratories (ABT), PNC Financial (PNC), Accenture (ACN), General Dynamics (GD), EOG Resources (EOG), and other dividend-paying firms.
For additional exclusive market insights and content from TipRanks Macro & Markets research analyst Yulia Vaiman, click here.
