Goldilocks Narrative Back in Play For Stocks?
Stocks climbed Friday, as the three major averages posted their first weekly gain of the new year.
The Dow Jones Industrial Average added 334.70 points, or 0.78%, to end at 43,487.83. The S&P 500 gained 1% to 5,996.66, and the Nasdaq Composite advanced 1.51% to 19,630.20.
Big tech stocks were higher on the day, with shares of Tesla popping 3%. Chipmaking giant Nvidia jumped 3.1%, while Alphabet shares added more than 1%.
For the week, the Dow and S&P 500 advanced 3.7% and 2.9%, respectively. Both indexes posted their biggest weekly advance since the week of the U.S. presidential election in November. The Nasdaq climbed 2.5% week to date for its best one-week performance since early December.
Those gains come after investors received back-to-back reports showing inflationary pressures softening somewhat. The core consumer price index rose less than expected year on year, and the producer price index also had a smaller-than-anticipated increase for December. The 10-year Treasury yield pulled back sharply as hopes for multiple rate cuts this year rose.
The better-than-expected economic data earlier this week has helped “revive the goldilocks narrative for equities, and likely prompted some re-risking,” Barclays strategist Emmanuel Cau wrote in a Friday note.
Strong earnings from major banks also boosted stocks this week, as they tried to shake off December doldrums that carried over into the start of 2025. Shares of Goldman Sachs and Citigroup were each roughly 12% higher on the week, while JPMorgan Chase added 8% in the period.
Investors are also looking ahead to next week, as Donald Trump is set to be inaugurated as president for the second time. Stocks rallied right after his November electoral victory, as investors bet on deregulation and lower taxes.
US stocks jumped on Friday amid a tech stock revival as investors assessed a week of key data and earnings reports alongside potential policy shifts under a Trump administration.
The Dow Jones Industrial Average (^DJI) gained 0.8% while the S&P 500 (^GSPC) rose 1%, coming off a losing day for the major gauges. The tech-heavy Nasdaq Composite (^IXIC) put on 1.5% as Nvidia (NVDA) and Tesla (TSLA) shares nudged back into the green.
Markets have turned upbeat as investors take stock of recent days' big bank earnings and inflation readings, which have resuscitated bets on interest-rate cuts. Stocks posted big weekly wins after a major rally on Wednesday, while the 10-year Treasury yield (^TNX) pulled back to trade around 4.6% on Friday.
The Dow finished up 3.7 for the week. The S&P recorded a 2.9% gain, while the Nasdaq closed 2.4% ahead of last week.
Housing starts climbed faster than forecast in December, and US industrial production outstripped estimates. The data out Friday added to a picture of strength in the US economy, buoying rate optimism.
Meanwhile, techs were staging a comeback, with Apple (AAPL) stock up 0.7% in afternoon trading after booking its worst loss since August. Chipmakers such as Micron (MU) joined Nvidia in making gains, while Coinbase (COIN) was among crypto-linked names getting a boost as bitcoin (BTC-USD) continued its advance above $100,000.
Minds are also on potential policy upheaval on the last day of trading before Donald Trump begins his second term as president. Fears are that his plans for tariffs, taxes, and debt — as aired by Treasury pick Scott Bessent on Thursday — could inflame inflation. Inauguration day is Monday, when markets will be closed to mark the Martin Luther King Jr. holiday.
China's economy, an adversary for Trump, grew more than expected last year, topping Beijing's 5% target after a stimulus blitz. But Asia stocks lost ground on Friday as investors weigh the potential hit from promised hefty tariffs.
This was a big week: inflation readings came in lower than expected sending bond yields lower, banks reported solid earnings and Big Tech came back in a big way at the end of the week.
In other words, a continuation of 2024 and it seems like the Goldilocks narrative for equities is back in play.
Lower inflation, lower yields, Fed should continue cutting despite strong economy, just buy big banks and big tech shares.
And let there be no doubt, the charts on big US banks remain bullish:
The fundamentals in the US economy remain solid, President-elect Trump and his administration have a clear agenda to deregulate, so why not invest in big banks?
But it wasn't just Financials that performed well this week, Energy, Materials, Industrials, Real Estate and Utilities all had a terrific week (click here for data):
My reading of this is inflation remains sticky despite coming in better than expected but clearly the drop in bond yields helped interest rate sensitive sectors this week.
The weakest sector was Healthcare which was flat as shares of Eli Lilly weighed on the sector after the company reported weak Q4 sales:
Also in healthcare, shares of Novo Nordisk -- maker of Ozempic -- made a new 52-week low today after the company's latest trial for a higher-dose Wegovy showed it helps patients shed more weight but not enough to dethrone Eli Lilly's Zepbound:
However, there's more to this story. Everyone is fretting Medicare to negotiate prices on 15 drugs, including Ozempic, but this is actually a good thing as lower prices will boost sales.
Biotech stocks continued to sell off this week and there are interesting opportunities shaping out there, especially if rates continue to decline in the near term:
What else? The recent sell-off in Apple shares looks like another buying opportunity but Nvidia and Tesla shares make me nervous here:
Still, it's all about earnings, if they beat, these stocks will continue to do well.
Alright, there is a lot more to cover in markets and next week I am paying attention to what the Bank of Japan will do because that can push up US yields.
Below, Tom Lee, Fundstrat managing partner, joins 'Closing Bell' to discuss his January playbook and his read on December's CPI report.
Next, Warren Pies, 3Fourteen Research co-founder, joins 'Closing Bell' to discuss the markets, the return of the bull rally and the Fed's next move.
Third, Dan Niles, founder of Niles Investment Management, says he expects AI spending to go through a "digestion phase" this year. Niles shares his views on why some of the Magnificent Seven tech stocks, such as Microsoft and Nvidia, are not among his top picks for 2025. He speaks with Haslinda Amin and Mark Cranfield on Bloomberg Television.
Fourth, Dan Ives, Global Head of Technology Research at Wedbush Securities, discusses the impact of rising bond yields and the strong dollar on tech stocks. Despite these pressures, he believes tech stocks have the potential to move higher this year, driven by strong consumer spending and the AI revolution.
Fifth, Gina Sanchez, Lido Advisors chief market strategist, joins 'Power Lunch' to discuss stock plays for three stocks.
Lastly, David Rosenberg, founder and president of Rosenberg Research has a bearish call on the equity markets as he says a huge headwind could impact certain future returns.
Comments
Post a Comment