MARKET COMMENTARY
Markets haven’t had the hottest start to the year, with the S&P 500 seeing two consecutive weeks of decline. That said, taking a closer look at other major indexes, the Russell 2000, which tracks small-cap stocks, is showing signs of renewed hope across equities beyond the Mag 7. What has driven returns over the past few years is big tech, which we’ll be hearing from this week. This includes earnings from Microsoft, Meta, Tesla, and Apple. Many investors have been favoring the fundamentals recently, so better than expected earnings could signal greater confidence and help boost the market overall.
The first Fed meeting of the year kicks off on Wednesday, where the FOMC is expected to hold interest rates steady, ending the easing cycle we’ve seen over the past few months. Now it’s time to wait and see before making any further decisions, as new economic data could swing interest rates either up or down. While we don’t believe a rate hike is in the near future, the job market does appear to be stabilizing; the other half of the Fed’s mandate is back in the conversation, with recent inflation data showing little change. While interest rates are typically the primary focus of FOMC meetings, this time around we’ll also be watching for a clearer gauge of where Fed independence lies. Tensions between the White House and Jerome Powell have been elevated following political pressure to cut interest rates further, as well as investigations involving both Fed Chair Powell and Lisa Cook. Hearing from Jerome Powell and observing how the Fed votes should provide insight into the Fed’s ability to maintain an objective perspective and make decisions based purely on economic data and forecasts rather than political influence.
With uncertainty high across the globe and the chances of another government shutdown increasing; the dollar has suffered, bond yields have steepened, and gold has soared. US stocks have outperformed global markets for many years, but we’ve seen a flip in that dominance as relative momentum slips. Likewise, the dollar is also falling, which brings greater returns for non-US stocks and indicates capital flowing out of the US. With investors continuing to remain skeptical, hard assets like gold are flourishing and greater premiums are being demanded to hold long-term US debt. While we’ve seen similar dynamics before, most recently last April following the announcement of Trump’s tariffs, these factors are important to monitor.
Economic Releases This Week
Monday: None
Tuesday: Consumer Confidence
Wednesday: FOMC Interest Rate Decision
Thursday: US Trade Deficit, Initial Jobless Claimsaims
Friday: Producer Price Index
Stories to Start the Week
Senate Democrats and Republicans call for investigation into killing of Alex Pretti
Odds of another government shutdown by the end of the week hit 79% as Capitol Hill fractures over Minnesota shooting
Israel says it recovered the last hostage body from Gaza
Another day another high, Gold surges past $5,100 as investors seek shelter from global risks
Power outages and canceled flights as winter storm brings snow, sleet & ice
Super Bowl 60 is set and it’s a rematch from 11 years ago: Patriots vs. Seahawks