Weekly Newsletter 01/31/25
Good afternoon,
US equities mostly higher in Friday trading, near best levels. This follows stocks finishing higher on Thursday. Breadth narrowing; equal-weight S&P lagging the official index after more than 80% of S&P components gained on Thursday. Major indices currently on track for a mixed performance for the week. Today, big tech is mostly higher, with Apple performing well after earnings. Other outperformers include software, autos, entertainment, media, hotels, and cruise lines. Laggards include energy, apparel, drug stores, homebuilders, and food/beverage. Treasuries mostly firmer with some curve flattening. Dollar index up 0.4%. Gold up 0.4% after hitting a fresh all-time high yesterday. WTI crude down 0.2%.
Earnings calendar the tailwind this morning with tech space in focus. Apple guide better than feared and talked about better iPhone performance in markets where Apple Intelligence is available and positive effects of China stimulus. Pretty quiet elsewhere. Not much impact on Treasuries from in-line core PCE data and hawkish-leaning remarks from a Fed member. Big economic reporting week on tap next week, including Institute for Supply Management (ISM) surveys and Non-Farm Payroll (NFP), though Fed Reserve takeaways highlighted an outsized focused on inflation and next Consumer Price Index (CPI) print not until February 12th.
Monday was a major risk off day for tech stocks amid news the Chinese developed a very inexpensive AI system called DeepSeek. A purported development cost of several million dollars versus similar US systems with price tags in the billions. I highly doubt this better mouse trap exists as advertised and, even if it is true, do we really want a Chinese developed AI system gaining serious traction in the US? The biggest surprise to me was DeepSeek was the most downloaded free app last weekend in both Google and Apple’s app stores. I would remind those folks anytime the product is free, you are the product. Leading AI chip provider Nvidia witnessed a market decline in excess of $590B on Monday…the single largest market decline by value in history, more than twice the previous record (also held by NVDA, Sept ’24). Retail investors were buying the dip with another big week of U.S. equity inflows ($20B+).
The buzzword of the week was “Jevons Paradox”. Jevons paradox is the idea that as a technology becomes more energy efficient, the cost of using the technology declines. The lower cost spurs consumption. The increased consumption, in turn, rises to wipe out any decreases in energy use the efficiency gains might have initially represented.
For example, refrigerators became more energy efficient and their use boomed thereby making future models more inexpensive and driving energy demand higher. In the 1920s when domestic refrigerators were invented, the average cost was around $550 or roughly $8,000 in today’s dollars. Cars became more fuel efficient and people drove more. Overall energy demand, in theory, either remains the same or rises. The AI narrative, according to many on Wall St, will experience meaningful GenAI training cost declines and will drive faster and broader adoption of GenAI products.
US consumer resilience theme underpinned by results/commentary from Visa and Mastercard, which also noted acceleration in January trends. While personal consumption ~100 bp better than expected in Q4 GDP report.
US energy producers not expected to ramp output in response to friendlier regulatory environment under Trump unless prices rise significantly.
Preliminary Q4 GDP rose 2.3% Q/Q, slightly below consensus for a 2.4% increase and also below Q3's final GDP reading of 3.1%. Q4 reading again driven by strong consumer and government spending though partly offset by a decrease in investment and exports.
Mentioned in previous weekly reports, corporations, the biggest source of demand for US equities, expected to get more active over the near term. Goldman Sachs noted that corporate buyback window ended last Friday, with ~45% of the S&P market cap to return to the market. An estimated $1T worth of corporate demand in 2025, representing the largest year on record for buybacks.
The link below contains additional resources and articles for your review.
https://www.raymondjames.com/evangelista/resources
“The factory of the future will have only two employees, a man and a dog. The man will be there to feed the dog. The dog will be there to keep the man from touching the equipment.”
Warren Bennis
Thank you,
Kyle
KYLE CHRISTIANSON, CFP®
Financial Advisor
Raymond James & Associates, Inc.
1421 Pine Ridge Rd, Ste 300
Naples, FL 34109
Toll Free (800) 843-2025 | Direct (239) 513-6525 | Main (239) 513-6500 | Fax (239) 596-5474
Kyle.Christianson@RaymondJames.com
Any opinions are those of Kyle Christianson and not necessarily those of RJA or Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. This is not a recommendation to purchase or sell the stocks of the companies mentioned. Leading Economic Indicators are selected economic statistics that have proven valuable as a group in estimating the direction and magnitude of economic change. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stocks of companies maintained and reviewed by the editors of the Wall Street Journal. The NASDAQ composite is an unmanaged index of securities traded on the NASDAQ system. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Sector investments are companies engaged in business related to a specific sector. They are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification. Investing in oil involves special risks, including the potential adverse effects of state and federal regulation and may not be suitable for all investors. Bond prices and yields are subject to change based upon market conditions and availability. Gold is subject to the special risks associated with investing in precious metals, including but not limited to: price may be subject to wide fluctuation; the market is relatively limited; the sources are concentrated in countries that have the potential for instability; and the market is unregulated.
