This week in review: 1/13/25

“In the short run, the market is a voting machine. In the long run, it is a weighing machine.” – Benjamin Graham

Good Morning ,

Markets continued their selling last week. A strong jobs report and hawkish Fed minutes caused stocks to sell off as investors lessened their expectations for further rate cuts in 2025.

Rising interest rates were a big driving factor in last week's action, reflecting worries about sticky inflation and that the Federal Reserve may maintain higher interest rates for an extended period.

The 10-yr yield surged 18 basis points last week to 4.78% and the 2-yr yield settled 12 basis points higher than last Friday to 4.40%. This price action was in response to last week's economic releases.

The reports include a stronger-than-expected ISM Services PMI reading for December and a November JOLTS - Job Openings Report that showed a noticeable increase in job openings.

The added wrinkle in the ISM Services PMI is that it also featured a notable pickup in the Prices Index (to 64.4% from 58.2%), which topped the 60.0% level for the first time since January 2024.

The data also included a below-consensus ADP Employment Change report for December (122,000; consensus 131,000), and an unexpected drop in weekly Initial Claims (201,000; consensus 218,000; prior 211,000).

The December employment report featured a 256,000 increase in nonfarm payrolls and a dip in the unemployment rate to 4.1% from 4.2%.

There was also a notable jump in year-ahead and long-run inflation expectations in the preliminary January University of Michigan index of Consumer Sentiment.

These are all positive for the economy but suggest more evidence that the Fed could pause further rate cuts.

Market participants also received the FOMC Minutes for the December 17-18 meeting, which echoed Fed Chair Powell's remarks in his press conference after the meeting. The minutes conveyed a belief that the Fed should hold off on another rate cut until it has more confidence in inflation returning to its 2% target and/or more concern about the labor market deteriorating in a more pronounced manner.

This is nothing new… the Fed makes decisions that are data centric. We get PPI and CPI this week.

Some market experts are even considering the possibility of a Fed tightening in 2025 now, if inflation perks back up?It is way too early to consider that in our view, and global rates should influence our domestic rates… our interest rates are quite high from a global perspective.

Most stocks participated in the broad retreat last week.

The market-cap weighted S&P 500 dropped 1.9% and the equal-weighted S&P 500 dropped 1.7%.

The Nasdaq Composite fell 2.3% and the Dow Jones Industrial Average closed 1.9% lower than the previous Friday. The S&P 500 briefly traded above its 50-day moving average last week before dropping back below that key level.

Only three S&P 500 sectors closed higher and eight closed lower than last Friday. The health care (+0.5%), energy (+0.9%), and materials (+0.1%) sectors closed higher while the rate-sensitive real estate sector logged the largest decline, dropping 4.1% from last week.

This week will unofficially begin the fourth quarter’s earnings season.

A handful of companies including Delta Air Lines, Walgreens, and Constellation Brands reported last Friday. Several large banks and other financial companies will continue to get the ball rolling this week.

We will hear from JPMorgan, Wells Fargo, Goldman Sachs, and BlackRock to name a few. According to FactSet estimates, earnings for S&P 500 companies are expected to grow by 11.9% year-over-year.

Have a great week!

Michael D. Hilger, CEP^®

Managing Director

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