Published March 7, 2025

February, historically a challenging month for investors, lived up to its reputation this year. After a strong start in January fueled by AI enthusiasm and recovery hopes, equity markets retreated as consumer confidence deteriorated with mounting policy uncertainties.

The S&P 500 finished February down 1.4 percent, the Dow Jones Industrial Average fell 1.6 percent, and the tech-heavy Nasdaq dropped 4 percent – its worst monthly performance since April 2024. This pullback came despite economic fundamentals that, on the surface, still appear relatively stable.

The U.S. economy expanded at a 2.3 percent annual rate in the fourth quarter of 2024, continuing the moderate but steady growth that has characterized the post-pandemic recovery. The unemployment rate held at 4 percent, essentially full employment, and job creation continued at a modest pace. Inflation, while still above the Federal Reserve’s target, showed signs of stabilizing, giving policymakers encouragement to consider rate reductions later this year.

As the policies of the new administration in Washington, D.C., began to take concrete shape, the Conference Board’s Consumer Confidence Index in February recorded its steepest drop – 6.7 percent – in over three years. This decline wasn’t limited to future expectations – confidence in present economic conditions also weakened.

This sentiment shift manifested in retail performance, with Walmart reporting its guidance for the remainder of the year below expectations, citing weakness in discretionary spending. Higher prices continue to strain household budgets. While wages have risen, they haven’t kept pace with the increased costs of necessities. The rapid rise in egg prices due to the bird flu epidemic was a headline grabber in this regard. For investors, the decline in consumer optimism signals potential trouble for […]

Published Feb 10, 2025

An old market adage is: “As January goes, so goes the year.” If that holds true, 2025 could prove interesting indeed. The S&P 500 advanced 2.7 percent for the month, and the Dow Jones posted an even more impressive 4.7 percent increase. The tech-heavy Nasdaq managed to climb 1.6 percent, although not without some drama along the way.

The Federal Reserve, as expected, kept rates steady in January. Chairman Jerome Powell, in his typically measured way, emphasized that the Fed would remain “data dependent,” while monitoring inflation and growth. The market seemed to accept this stance, at least for now. And jobs and inflation numbers reported for January did not cause the market to believe that there would be any near-term change. Economists, including those at Goldman Sachs, who had been predicting three rate cuts for 2025 as recently as December, have, for the most part, tempered those calls to possibly one cut. As we have seen before, the Fed’s patience can wear thin when inflation signals appear, which could well happen with labor shortages and the cascade of new tariff announcements.

The tech sector hit major turbulence in January when DeepSeek, a Chinese startup, announced it had built an AI model that matches those of industry leaders at a fraction of the cost. Never mind that innovation drives technology forward – traders hit the panic button. Nvidia, the U.S. AI and GPU semiconductor chip leader, with its 80 percent market share in discrete GPUs (graphics processing units) and near dominance in data center GPUs, dropped 17 percent – its worst decline since October 2023. This was the largest market capitalization decline in the history of […]

Published Jan 10, 2025

The year 2024 will be remembered as one of the most extraordinary periods in market history. A potent combination of easier monetary policy, continued fiscal stimulus, and the transformative impact of artificial intelligence capabilities created powerful tailwinds for investors. The S&P 500’s achievement of 57 record highs was a remarkable performance. 2024 was the second of back-to-back years of 20 percent-plus increases, totaling a 53.19 percent gain for the index over two years. That surge followed a 19.44 percent decline in 2022. And 2024’s increase represents $9.76 trillion added to investor accounts. Over half of this increase was provided by the “Mag 7” – the top seven stocks in the index.

The tech-heavy Nasdaq led the charge with a nearly 40 percent gain, as both established tech giants and emerging companies capitalized on AI breakthroughs. However, unlike previous tech-driven rallies, this surge was supported by seemingly solid economic fundamentals. Companies positioned along the AI supply chain – from chip manufacturers to data center builders – captured the lion’s share of gains. The market rewarded not just direct AI players, but any company that could demonstrate a meaningful connection to this technological revolution.

Foreign capital poured into U.S. markets at a historic pace in 2024, drawn by strong returns and economic stability. As an example, South Korean investors pushed their U.S. stock holdings to $112.1 billion – up 65 percent from 2023 – while pulling money from their home market. British investors followed suit, adding a record $34 billion to U.S. equities. This flight to American markets reflects both the strength of the dollar and global investors’ hunt for growth in an uncertain world.

The data-driven […]

Published December 6, 2024

November’s decisive presidential election outcome unleashed a wave of market optimism, with the S&P 500 reaching new highs and delivering its best performance through the first three quarters of any year this century. The S&P achieved record high closing prices more than 50 times through the end of November. The Dow Jones Industrial Average crossed 44,000 for the first time, while after the election the Russell 2000 index of small-capitalization stocks surged 8.6 percent — its largest weekly gain since April 2020.

As it became clear that the uncertainty of a potentially contested election was removed, investor cash that had been sitting on the sidelines came pouring out of money markets and gold and into equities. Optimism about the favorable regulatory and tax treatment for corporate America took hold. Sector rotation was dramatic and immediate. Banks surged on expectations of regulatory relief and increased M&A activity, with JPMorgan Chase, Wells Fargo and Goldman Sachs all rising more than 12 percent in the session after the election. Industrial stocks, particularly equipment manufacturers and domestic steelmakers, rallied on prospects of protective tariffs.

The Federal Reserve continued its measured approach to monetary policy, cutting rates by 0.25 percent to a range of 4.5 percent to 4.75 percent, following September’s larger 0.5 percent reduction. There was a highly unusual, single dissenting vote – the first opposing a Fed chair in almost 20 years. Fed Gov. Michelle Bowman expressed concern that the inflation goal has not been met and further rate cuts might reignite it. In fact, October’s core PCE (Personal Consumption Expenditures) inflation ticked up to 2.8 percent, moving away from the Fed’s 2 percent target. This persistent […]

Published November 8, 2024

October 2024 delivered a complex blend of economic signals that tested market resilience. The S&P 500’s decline of roughly 1.0% for the month masked significant underlying crosscurrents, as investors processed natural disasters, labor disruptions, and pre-election uncertainty amid shifting monetary policy expectations.

The headline grabber was October’s surprisingly weak jobs report, showing only 12,000 positions added – a dramatic drop from September’s revised 223,000 gain. This apparent weakness was most likely due to temporary disruptions from Hurricanes Helene and Milton, along with the Boeing machinists’ strike affecting 33,000 workers directly and thousands more through supply chain impacts. Stripping out these transitory effects suggests underlying job growth remained in the healthy 100,000-150,000 monthly range. The unemployment rate held steady at 4.1%, while wage growth ticked up to 4.0% year-over-year, indicating continued labor market resilience beneath the headline volatility.

The economy’s fundamental strength was further evidenced by third-quarter GDP growth of 2.8%, powered by robust consumer spending and government expenditure. While this marked a slight moderation from Q2’s 3.0% pace, it reinforced America’s remarkable economic outperformance. Since early 2020, U.S. real economic growth has reached 10%, tripling the average of other G7 nations. This divergence reflects not only increased fiscal stimulus spending, outpacing that of other developed countries, but also deep-seated advantages in productivity and innovation – the average American worker now generates approximately $171,000 in annual economic output, far exceeding the $120,000 in the eurozone, $118,000 in Britain, and $96,000 in Japan, as reported in The Economist.

Inflation continued its uneven decline, with September’s CPI registering a 2.4% annual increase, down from 2.5% in August but above expectations of 2.3%. Core inflation proved especially stubborn at […]

Published October 11, 2024

As leaves began their annual transformation in autumn, the stock market defied its usual seasonality. September has historically been a challenging month for U.S. stocks — often the worst of the year — but not this time. This year, September provided noteworthy market returns, spurred by the Federal Reserve’s 50-basis-point rate cut, resulting in a resurgence in stock market optimism. Year to date, through the end of September, the S&P delivered its best return since 1997, with an increase just shy of 21 percent.

On Sept. 18, the Federal Reserve, led by Chairman Jerome Powell, lowered the federal funds rate by 0.50 percent to a range of 4.75 percent to 5 percent. This larger-than-expected cut was described by Powell as “recalibrating policy down over time to a more neutral level.” In other words, the Fed lowered rates not because the economy needs a boost but rather quite the contrary. Powell explained that the cut is because rates are just too high, not because of weakness in the economy. This reassurance fueled the market bounce. The decision also reflects the Fed’s growing confidence in the progress made to tamp down inflation, which has eased from a peak in June 2022 of nearly 7 percent for the PCE to an estimated 2.2 percent as of August, according to the latest PCE data released on Sept. 27. It’s a sign of the “soft landing” many people hope for.

The market’s reaction to the Fed action and Powell’s words was overwhelmingly positive. The day after the announcement, the Dow Jones Industrial Average surpassed 42,000 points for the first time, while the S&P 500 and Nasdaq Composite also reached […]

Published September 6, 2024

August 2024 began with a jolt as financial markets grappled with the sudden unwinding of the now widely known “yen carry trade.” This strategy, where investors borrow in low-interest-rate currencies like the Japanese yen to invest in higher-yielding assets elsewhere in the world, had become increasingly prevalent due to Japan’s ultra-low interest rates basically providing “free” money. However, as the Bank of Japan raised rates and the gap between U.S. and Japanese government bond yields narrowed, this trade began to unravel spectacularly.

The rush to cover positions led to a surge in the yen and forced selling across various asset classes, contributing to significant market instability in the early days of the month. The Nikkei, Japan’s market benchmark, declined 27 percent from its July top.

This event served as a stark reminder of the interconnectedness of global markets and the potential ripple effects of leveraged trading strategies. It underscored the need to understand and manage risk in investment portfolios, particularly when it comes to complex strategies involving currency markets. Moreover, it reminded individual investors of the value in staying calm during such market disruptions, as these events often prove temporary.

Despite the early month turbulence, major U.S. stock indexes managed to close August with noteworthy gains. The S&P 500 finished up 2.3 percent for the month, the Dow Jones Industrial Average rose 1.8 percent and the tech-heavy Nasdaq Composite ticked up 0.6 percent. FactSet reported S&P earnings for the second quarter of 2024 up 10.9 percent, which would be the highest year-over-year increase since Q4 2021. Strong earnings reports and positive guidance from many companies in diverse sectors and recurring signs of a resilient consumer […]

Published July 3, 2024

June closed a remarkable first half of 2024 for the U.S. stock market, driven by an unrelenting fervor for AI investments. The S&P 500 climbed an impressive 14 percent year-to-date, propelled by gains in technology giants and AI-related stocks. Nvidia has been at the forefront of this surge, with its shares skyrocketing 149 percent so far this year. Nvidia briefly became the most valuable public company globally, with a market cap surpassing $3 trillion. Other major tech players, including Alphabet, Apple, Microsoft, Meta, and Amazon have likewise seen substantial gains, and these six stocks now represent over 30 percent of the S&P 500 index. The outsize performance of these AI-driven stocks highlights a potential vulnerability in the current rally in that the overall market’s strength is heavily reliant on a narrow group of top-performing companies.

Inflation remains a critical factor in market sentiment. The Federal Reserve’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) price index, rose by a modest 2.6 percent in May from 12 months previous, marking the lowest year-over-year increase since 2021. This encouraging data suggests that price pressures may be moderating, potentially paving the way for the Fed to ease interest rates later this year. Gross domestic product expanded at a 1.4 percent annualized rate in the first quarter of 2024, a slight uptick from the previous estimate.

According to the Consumer Confidence Index, consumer confidence dipped slightly in June, indicating that while consumers’ assessments of the current business and labor market conditions improved, their outlooks weakened. This mixed sentiment highlights the delicate balance between the strength of the current economy and concerns about the future and an overstretched consumer.

Despite […]

Published August 9, 2024

July brought a cooling breeze to the red-hot rally that defined the first half of 2024. The S&P 500’s modest 1 percent gain in the month contrasted sharply with its blistering 14.5 percent advance during the first six months, when it set roughly three dozen record highs. This deceleration stemmed largely from a rotation from large-cap to small-cap stocks, blunting the market’s earlier momentum.

The Dow Jones Industrial Average outpaced its peers with a 4 percent increase, while the tech-heavy Nasdaq Composite dipped slightly. This divergence highlighted the month’s key theme: a shift from AI-driven tech giants to lagging sectors such as industrials and to smaller companies.

The Federal Reserve’s actions played a pivotal role in shaping market sentiment. While the decision to hold interest rates steady at the July 31 meeting was widely anticipated, investors scrutinized Fed Chair Jerome Powell’s press conference for future policy clues. Encouraging inflation data, coupled with a cooling yet resilient labor market, fueled expectations of potential rate cuts as early as September. The PCE price index rose by 2.5 percent year over year in June, edging closer to the Fed’s 2 percent target, bolstering hopes for a “soft landing” scenario.

Markets reacted sharply in the days following the Fed meeting in July. The Dow Jones Industrial Average fell more than 600 points in a single day, reflecting investors’ disappointment that the Fed hadn’t moved more decisively toward rate cuts. This negative sentiment was compounded by a weaker-than-expected jobs report on Aug. 2, showing only 114,000 jobs added in July and unemployment ticking up to 4.3 percent. While supporting the case for future rate cuts, this data also stoked fears […]

Published Jun 7, 2024

This was not the May to follow the conventional wisdom of “Sell in May and go away.” The ongoing news about the power of generative artificial intelligence (AI) to disrupt so many aspects of the work and leisure worlds fueled continuing optimism among traders and investors who had been sitting on the sidelines, hoping for a pullback.

The Dow closed out the month with a monstrous, late-day rally, rising almost 575 points, or 1.5 percent, for its best day of 2024. This move reversed the drop on May 23 of 600 points, or more than 1.5 percent, on the Dow’s worst day since March 2023. This decline in 2024 was primarily due to a 7.6 percent drop in Boeing (BA) shares following an announcement of delayed plane deliveries.

Despite the eleventh-hour gains on Friday, fueled by the release of key inflation data that reassuringly met expectations, all three indexes lost ground over the week. The Nasdaq fell 1.1 percent on the week, snapping a five-week streak of gains. The Dow and S&P 500 lost 1 percent and 0.5 percent, respectively. Yet the month remained a good one for all the indexes, with gains of 2.3 percent for the Dow, representing almost all its gains for the year, 4.8 percent for the S&P, and 6.9 percent for the Nasdaq. Year to date as of month end, the Dow was up 2.64 percent, the S&P 10.64 percent, and the Nasdaq 11.48 percent. On May 17, the Dow closed above 40,000 for the first time ever; but it ended the month at 38,686.

Stocks slid from record levels as interest rate worries dominated investor sentiment after blockbuster earnings […]