Last week was the second week running that the start of the week was characterised by turmoil, this time caused by tariff threats. Mr Trump announced with great fanfare 25% tariffs on goods from Mexico and Canada (except Canadian oil, at 10%) and an additional 10% tariffs on goods from China last Sunday. With investors puking on the threat of blanket tariffs at the open Monday, President Trump quickly rescinded the tariffs on Mexico and Canada, able to present it to his base as a “win.” Investors just have to get used to the unpredictability of the American president and accept that it is his style, meaning that what he says should not always be taken seriously. Invest accordingly. As an aside, I wrote about the US balance of payments, trade and tariffs mid-week, in an article you can find on my blog here.
Once the “tariff dust” settled, markets resumed some sense of normalcy, edging up slightly throughout the week until the combination of January employment data and the University of Michigan consumer survey wrecked Friday’s session. Stocks had managed to keep their head above water most of the week, in spite of mixed earnings as discussed further below. When the dust settled on Friday, we were left nursing losses on stocks in the US for the week, higher US Treasury yields at the policy-influenced short end of the curve, and slightly lower yields at the intermediate and long end of the curve. Gold again hit a record high, oil prices weakened, the US Dollar was slightly weaker after gains on Friday, and corporate credit spreads – something I watch closely at this point of the cycle – were largely unchanged / mixed. You can find comprehensive updated tables at the end of this update.
Earnings
131 of the S&P 500 companies reported last week, and you can find an excellent summary of earnings so far at FactSethere. Most investors were focused on two of the Mag 7 companies – GOOG and AMZN – which reported earnings, leaving only NVDA to report later this month. AMZN beat top- and bottom-line analysts’ consensus expectations, but GOOG missed slightly on the top line (although it beat earnings). Similar to MSFT the week before, both AMZN and GOOG disappointed in terms of cloud growth. In all three cases, it sounds as if the issue is not cloud demand, but rather capacity constraints. I suppose this is a high class problem so long as the three global cloud companies are eventually able to address their capacity issues. AMZN also revised down its guidance for revenues in the quarters ahead, catching investors slightly off guard. GOOG surprised investors with a much higher level of capital expenditures than had been expected ($75 billion in 2025) in order to continue to develop AI. The table below is an update of the table presented last week, showing the performance of the Mag 7 stocks YtD and since they started reporting 4Q24 earnings.
Scott Bessent interview with Bloomberg
#Bloomberg journalist Seleha Mohsin interviewed new Treasury Secretary Scott Bessent on Thursday, and you can watch the 18 minute interview on YouTube here. The interview provided some good insights into Mr Bessent’s views and priorities. Certainly, he is professional and experienced, an “adult in the room” so to speak in the Trump Administration. Mr Bessent said he has a good working relationship with Fed chair Powell, although they just recently met for the first time. Rather than interfering with (independent) Fed policy, Mr Bessent said that he and the Administration would be focused on yields at the intermediate and long end of the curve (specifically 10-year yields), which are policy (rather than Fed) influenced. He also said that he believes in the systematic review of government expenses being undertaken by Mr Musk and the DOGE team, and will be working collaboratively to reduce government expenses. Naturally, he is in favour of also reducing taxes, which (to me) is dependent on slashing government expenditures. Overall, I did not consider the questions terribly deep or challenging, but the interview nonetheless is a good introduction to Mr Bessent and is worth a watch.
U.S. jobs and University of Michigan Consumer confidence survey
The January US jobs report came out Friday before the open, which was largely mixed. The unemployment rate fell (from 4.1% in December to 4.0% in January), and wage growth was higher than expected for the month (+0.5% vs expectations of 0.3%). The US added less jobs in January than expected, but this was not enough to soothe bond investors, who largely saw the employment report as good for the US economy but bad news for yields (and stocks). You can find the report from the BLS here. The University of Michigan preliminary consumer sentiment survey for January, also released on Friday morning, saw consumer confidence fall to a 7-month low, and inflation expectations surge to 4.3%, the highest since November 2023. Again, this news was not well received by investors, who see the threat of tariffs on the horizon along with general uncertainty associated with fiscal policy as inflationary. It is hard to argue against the Fed remaining cautious about inflation, rattling both stocks and bonds on Friday.
Bank of England decision
The Bank of England lowered its benchmark Bank Rate 25bps on Thursday, from 4.75% to 4.50%. The Monetary Policy Summary can be found here. The vote was 7-2, with two members of the MPC voting for a jumbo 50bps reduction in the Bank Rate. In a blow to the Labour government, the BoE also lowered its growth projections for the UK economy in 2025 (GDP growth), from 1.4% in November 2024 to a rather anaemic 0.4% at the policy meeting on Thursday. The UK is largely suffering from sideways economic growth and slightly still-above-target inflation, similar to the Eurozone, with both respective central banks expected to reduce their policy rates further in 2025.
WHAT’S AHEAD
Economic focus: There will be plenty of focus mid-week on January CPI in the US, which will be released on Wednesday. January retail sales in the US will be released next Friday, another economic indicator of the state of the US economy. 4Q24 GDP will be released for the UK and the Eurozone. Talking heads from the Fed and Bank of England will be speaking on the circuit, justifying their respective policy stances.
Earnings: 78 S&P 500 companies will report earnings this coming week, including MCD, SHOP, KO, BP, DASH, CVS, CSCO, DE, COIN, DKNG and ABNB. A very good source for tracking earnings is earningswhispers.com.
Upcoming central bank meetings:
ECB: Mar 5-6
Bank of Japan: Mar 18-19
FOMC: Mar 18-19, including revised Summary of Economic Projections
Bank of England: Mar 20
MARKET TABLES
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