Published January 24, 2025
Whereas December showed investors becoming fearful of a sharp rise in interest rates, January seems to be bringing a more optimistic read on those rising rates, namely that economic growth will re-accelerate. When Trump’s first day in office did not bring substantial across the board tariffs, stock investors took it to mean that the bulls could run. Earnings have come in very good so far further emboldening the bulls. Below is Blaine Rollins’ take on the “New Day” of a new administration that has also served to fuel some investor optimism.
“The sun rose once again this morning. It didn’t care who anyone in my town voted for in November. It did its job and still filled the sky with amazing colors of red, orange, purple and blue for everyone to see. All with a great half moon overhead and the hummingbirds getting an early start on their cold breakfasts.
The good news for the markets over the weekend was that the incoming administration did not bring in a set of broad immediate tariffs placed on all foreign traded goods. And so, the guardrails of the markets remain in place. Treasury yields are cheering as they move sharply lower in response. And equities are joining in by jumping higher while moving back toward all-time highs. This all followed a better than expected set of CPI numbers last week as housing and insurance prices surprised to the downside. Further feeding investor appetites has been a strong set of earnings releases by the biggest banks and some other key companies. While the U.S. financial stocks are leading the U.S. indexes higher, don’t think that this is only a U.S. thing. Check out the equity indexes in Germany, the U.K., and Tel Aviv which are also making new highs.
While the press will be focused on every move at the White House, investors will be diving in on earnings for the next 2-3 weeks trying to find who has the best leverage to the uptick in the economy and business sentiment. While the Mag-7 will still see good numbers, there are likely thousands of companies, public and private, who will see big margin jumps from their upticks in revenues. Expect the number of winners to broaden out significantly this year if the new economic trends persist. And after three years of little equity stock issuance, 2025 could see a flood of new offerings as private owners have names to sell and stock participants are hungry for anything new to fill their portfolios.
Fueling the markets are expectations that the pendulum is about to swing off of its clock…
Investor Stan Druckenmiller: I’ve been doing this for 49 years, and we’re probably going from the most anti-business administration to the opposite. We do a lot of talking to CEOs and companies on the ground. And I’d say CEOs are somewhere between relieved and giddy.
(TradeTheNews)
And you heard more of the same excitement from the big bank calls last week…
“There has been a meaningful shift in CEO confidence, particularly following the results of the U.S. election. Additionally, there is a significant backlog from sponsors and an overall increased appetite for dealmaking supported by an improving regulatory backdrop. The combination of these conditions should spur further activity in 2025.” — Goldman Sachs Chairman & CEO David Solomon.
“The U.S. economy has been resilient. Unemployment remains relatively low, and consumer spending stayed healthy, including during the holiday season. Businesses are more optimistic about the economy, and they are encouraged by expectations for a more pro-growth agenda and improved collaboration between government and business.” — JPMorgan Chase CEO Jamie Dimon.
“Now in terms of sentiment and things of that variety, clearly, there’s a lot of positivity. Our client base is excited. I think there’s a lot of momentum clearly in our pipelines that we can see has not yet translated into elevated loan growth at this point.” — US Bancorp Senior Executive VP & Head of Finance John C. Stern.
The Transcript
A strong economy with few credit risks and plenty of optimism has sent financial stocks to all-time record high prices. It has also led to a sharp increase in expectations for new IPOs, a market which has been largely dormant since 2021. Here’s the chart:
Though going public via IPO is no longer the only way to cash out startup capital investors and raise new funds. Private equity has become a major alternative for companies. That is providing additional profit fuel for financial companies.”
The economy looks set to deliver another year of solid growth. But all expectations also are for more volatility as markets adjust to a flurry of new policies and the ramifications emerge later in the year.
Market Update
Investors came back from the Monday MLK holiday to a solid +0.9% move higher by equities. The lack of tariff action in President Trump’s first day in office emboldened investors as did good earnings from Schwab and 3M. The market experienced a rotation Wednesday with the Administration’s announcement of an AI investment pool sending the Nasdaq higher by +1.3%. Another +0.5% lift to a new record for the S&P 500 Thursday as a speech by President Trump suggested his desire for lower interest rates. The rally spread to international markets Thursday and Friday with the U.S. dollar continuing a two-week slide to help international shares. Friday saw a muted day on Wall Street with stocks dipping -0.3% after a good run earlier in the week.
Stocks bounced higher as investors appeared to embrace the initial moves, and lack thereof, from President Trump’s administration. The S&P 500 added +1.74% to a record. The Nasdaq 100 (QQQ) added +1.51%. Small cap stocks ticked upward by +1.43%.
Warm wishes and until next week.