January 31, 2025
Good morning,
So far this week, the market has been mending the wounds from deep-sink Monday with mixed results. After losing -1.46% on Monday, the S&P 500 Index is down -.49% through last night’s close. Other indices, week-to-date are; NASDAQ Comp -1.37%, Dow Industrial’s +1.03%, Russell 2K +0.0%, Int’l Developed +.94%, and EM +.53%. A mixed bag indeed – damage now concentrated in tech, specifically Nvidia, -14% W-T-D (a $500 Billion decline in market cap)
From a broad equity market perspective, there are a few positive takeaways from Monday’s DeepSeek jolt. Whether the legitimacy of the biggest driver of the cyclical bull market would spill into the rest of the market was, at least initially, answered no. Monday was more of a rotation than a selloff. More stocks rose than fell on Monday. For the S&P 500 to fall -1.5% against a rising Advance/Decline line is truly a rare event. It has only happened 11 times since 1980. And when it has, on average, the S&P 500 has posted above-average returns one month to one year later.
The near panic conditions on Monday may not have been so widespread if the stocks targeted were not so large and expensive. Monday did nothing to reduce those risks. The top 10 stocks still account for 37.8% of the S&P 500, far above concentrations seen at the height of the dotcom bubble or the Nifty 50 era.
Jay Powell and his FOMC colleagues are not accustomed to sitting in the back seat of the vehicle that drives the U.S. economy. However, the news surrounding DeepSeek, Mag 7+ earnings, and pronouncements by Trump were all in the front seat this week. The predictability of this week’s Fed meeting didn’t help the Fed’s dimming spotlight. The meeting was best characterized as “We are in no hurry and are on hold.” The Fed’s expectation of more cuts this year now sits at 2, and markets are not far away from that in their prediction process.
I hope you have a nice weekend; see you Monday when we explore “Whistling Past The Graveyard.”
Be well,
Mike
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