January 13, 2025
Good morning,
The S&P 500 Index was off -1.92% last week; NASDAQ -.72%. Russell 2K -3.49%, International Developed and Emerging -.43% and -1.49% respectively – declines last week were U.S. centric. This is the second week in a row of declines – is this just a correction or something worse? At a minimum, the market seems determined to unwind the election gains. The Russell 2000 is the first U.S. equity benchmark to give back all of its election gains, and the Dow is not far behind. The S&P 500 still has a 2% cushion, while the NASDAQ cushion is ~5%.
Almost all of last week’s losses came on Friday with the stronger than expected employment data. The hangover from Friday is lingering this morning – Futures are off ~.60% in premarket trading. We will be getting some key inflation data this week, with CPI/PPI data on Tuesday/Wednesday, which will likely be the next catalyst of a yield move in the recently volatile bond market. Earnings season begins unofficially on Wednesday, with big banks releasing their numbers. Tougher comparisons, elevated estimates and lower beat rate likely imply a tougher earning environment this year. My concern this earnings season is connected to the Russell 2000’s recent give-back of gains. The reason is that as Mag 7 EPS growth slows from extremely high levels, the rest of the market may need to make up the difference.
The overall message from the market weakened last week – it registered a negative Tape signal. Correction is still the message, but with yields continuing to rise and the tape reflecting weakness, I doubt it will take much more of that to sound the signals for defensive measures. It will be an interesting week.
Be well,
Mike
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