January 10th, 2025: Weekly Market Review

The U.S. stock market closed on Thursday 1/9/25 to honor President Jimmy Carter on a National Day of Mourning. 

This rare occurrence reflects the nation’s respect for his legacy as the 39th President, known for his commitment to peace, human rights, and public service. The closure allows Americans to reflect on his contributions and ensures that market participants can observe the day appropriately. Regular trading will resume on the next business day.

1. The yield on the US 10-year Treasury has surged to an all-time high, signaling a significant shift in financial markets.

This rise reflects investor concerns about persistent inflation, elevated government borrowing, and expectations of prolonged Federal Reserve interest rate hikes. Higher yields indicate increased borrowing costs for the government and corporations, potentially dampening economic growth.  The Federal Open Market Committee (FOMC) last convened on December 17-18, 2024. The minutes from this meeting were released on January 8, 2025.  The FOMC minutes indicated that Fed officials are growing increasingly cautious about rate cuts.  FOMC participants sharply shifted their views on inflation risks (to the upside).  See charts below.  REF: DailyShot, FederalReserve

2. According to FactSet, as of January 3, 2025, 106 companies in the S&P 500 have issued earnings per share (EPS) guidance for the fourth quarter. Of these, 71 have provided negative EPS guidance, while 35 have offered positive guidance. 

The number of companies issuing negative EPS guidance is above the 5-year average of 56 and the 10-year average of 62. This quarter also marks the fifth time in the past eight quarters that more than 70 S&P 500 companies have issued negative EPS guidance.  The Information Technology, Industrials, and Consumer Discretionary sectors have the highest number of companies issuing negative EPS guidance among all 11 sectors. These three sectors also show the largest increases in negative EPS guidance relative to their 5-year averages.   This trend suggests that companies in these sectors anticipate challenges that may impact their earnings in the near term.  We are rotating some allocation from technology into financials.  REF: FACTSET

**With the current macro-economic backdrop, below are areas we currently favor:

• Fixed Income – Short-term Corporates (Low-Beta)
• Fixed Income – Corporates High Yield as Opportunistic Allocation (Low-Beta)
• Businesses that contribute to and benefit from AI & Automation (Market-Risk)
• Financials (Market-Risk)
• Small Cap & Mid Cap Stocks (Market-Risk)
• Utilities (Market-Risk)
• Healthcare & Biotechnology (Market-Risk)
• Gold (Market-Risk)
• Industrials (Market-Risk)

3. At CES 2023, Elon Musk joined Mark Penn, Stagwell’s CEO, and 25 CMOs to discuss AI, robotics, Neuralink, space exploration, and Mars colonization. 

Musk shared bold predictions on AI’s role in cognitive tasks, humanoid robots, autonomous cars, and X’s future as a platform for collective human consciousness. They also explored government’s role in tech, internet connectivity, and combating global pessimism.  Elon Musk posited that artificial intelligence has reached a critical juncture in its development. According to Musk, AI has effectively “exhausted” the available pool of human-generated data in 2024. This assertion implies that AI models have been trained on virtually all existing text, images, code, and other forms of digital information created by humans. This milestone signifies a paradigm shift in how AI will learn and evolve in the future.

Traditionally, AI models are trained on massive datasets of human-generated data. This data serves as the foundation for AI to recognize patterns, understand language, and generate new content. However, with the consumption of this finite resource, AI is now compelled to explore new avenues for learning. Musk suggests that the future of AI training lies in “synthetic data” – data generated by AI itself.   Synthetic data refers to information created artificially by algorithms, rather than being collected from the real world. In this new paradigm, AI models will essentially train themselves using data they generate, creating a feedback loop of self-improvement. This approach has the potential to unlock new levels of AI capabilities, allowing models to surpass the limitations of human-created data.   The implications of this shift are profound. It suggests that AI is entering a phase of autonomous learning, where it can generate its own training material and refine its abilities without direct human input. This could lead to rapid advancements in AI capabilities, potentially leading to breakthroughs in various fields. However, it also raises important questions about the nature of knowledge, creativity, and the future of human-AI collaboration.  More to come on this topic.  Click onto picture below to access video.  Elon also gave updates on FSD, Tesla AI / Vision, Neuralink, and Optimus.    REF: Musk-Penn, CES, Synthetic Data

4. World Watch

4A. At CES 2025, NVIDIA CEO Jensen Huang unveiled several groundbreaking advancements that underscore the company’s leadership in artificial intelligence (AI) and computing.  See summary below.  Click onto picture further below to access video.  REF: Cybernews, BARRON’S, WIRED, CES

• GeForce RTX 50 Series GPUs: NVIDIA introduced the GeForce RTX 50 Series, powered by the new Blackwell architecture. These GPUs promise significant performance enhancements for gaming and AI-driven graphics rendering. The flagship RTX 5090 is priced at $1,999, while the RTX 5070 is set at $549.

• Project Digits: Huang announced NVIDIA’s first desktop AI computer, Project Digits, priced at $3,000. Aimed at engineers, data scientists, and AI researchers, it delivers up to one petaflop of AI performance, integrating the new GB10 Grace Blackwell Superchip with an Arm-based CPU and GPU.

• Cosmos AI Models: The introduction of Cosmos AI models is set to revolutionize the training of robots and autonomous vehicles. By generating photorealistic videos and virtual scenarios, Cosmos facilitates more efficient and cost-effective training, enhancing AI models’ understanding of the physical world.  This, I believe, is the most profound item from his presentation. 

• Automotive Partnerships: NVIDIA has strengthened its presence in the automotive sector through collaborations with industry leaders. Toyota plans to integrate NVIDIA’s Drive AGX Orin supercomputer and DriveOS into its next-generation autonomous vehicles, aiming to enhance safety and efficiency.

Below is a snapshot of the 14 humanoid robots made by different companies to be powered/influenced by NVIDIA’s Cosmos AI Models.   Note: Tesla’s Optimus is not one of them.

4B. The resignation of Canadian Prime Minister Justin Trudeau would mark a significant political shift with broad implications for both Canada and its relationship with the United States. Domestically, Trudeau’s departure would trigger a leadership contest within the Liberal Party, potentially resulting in a new direction for government policies. If this occurs during a minority government, it could lead to political instability and possibly an early election. Key Liberal initiatives, including climate change policies, Indigenous reconciliation, and economic reforms, might be reevaluated under a new leader, reflecting shifts in public sentiment or dissatisfaction with Trudeau’s leadership.

In the United States, Trudeau’s resignation would impact Canada-U.S. relations, which he has significantly influenced, especially during the renegotiation of the USMCA (United States-Mexico-Canada Agreement). A new Canadian leader might approach trade, immigration, energy policy, and border security differently, creating potential uncertainty in these areas. Additionally, changes in leadership could affect economic and trade relations, particularly for industries like lumber, automotive, and agriculture, that rely heavily on cross-border collaboration. On the global stage, Canada’s alignment with the U.S. on issues such as NATO, climate change, and Ukraine could also shift, depending on the priorities of Trudeau’s successor.  While political transitions in Canada are typically stable, Trudeau’s resignation during a period of economic or geopolitical tension could amplify its impact. The eventual successor’s ability to maintain public trust and navigate Canada-U.S. relations will play a crucial role in shaping the future direction of both nations’ policies.  Click onto picture below to access video.  REF: WSJ

4C. Below is an updated snapshot of the current global state of economy according to TradingEconomics as of 1/7/2025.  REF: TradingEconomics

• The annual inflation rate in Germany accelerated for a third consecutive month to 2.6% in December 2024 from 2.2% in November and above market forecasts of 2.4%, preliminary estimates showed.
• The unemployment rate in Italy dropped to 5.7% in November 2024, below market expectations of 6% and down from 5.8% in the previous month.
• Mexico’s unemployment rate edged up to 2.6% in November 2024 from 2.5% in October, remaining below market expectations of 2.7%.
• The annual inflation rate in the Euro Area accelerated for a third straight month to 2.4% in December 2024, the highest rate since July, compared to 2.2% in November and in line with expectations, preliminary estimates showed.

5. Quant & Technical Corner

Below is a selection of quantitative & technical data we monitor on a regular basis to help gauge the overall financial market conditions and the investment environment.

5A. Most recent read on the Fear & Greed Index with data as of 1/6/2024 – 8:00PM-ET is 37 (Fear).  Last week’s data was 27 (Neutral) (1-100).  CNNMoney’s Fear & Greed index looks at 7 indicators (Stock Price Momentum, Stock Price Strength, Stock Price Breadth, Put and Call Options, Junk Bond Demand, Market Volatility, and Safe Haven Demand).  Keep in mind this is a contrarian indicator!  REF: Fear&Greed via CNNMoney

5B. St. Louis Fed Financial Stress Index’s (STLFSI4) most recent read is at –0.6404 as of January 2, 2025.  A big spike up from previous readings reflecting the recent turmoil in the banking sector.  Previous week’s data was -0.5224.   This weekly index is not seasonally adjusted.  The STLFSI4 measures the degree of financial stress in the markets and is constructed from 18 weekly data series: seven interest rate series, six yield spreads and five other indicators. Each of these variables captures some aspect of financial stress. Accordingly, as the level of financial stress in the economy changes, the data series are likely to move together.  REF: St. Louis Fed

5C. University of Michigan, University of Michigan: Consumer Sentiment for September [UMCSENT] at 71.8, retrieved from FRED, Federal Reserve Bank of St. Louis, December 20, 2024.  Back in June 2022, Consumer Sentiment hit a low point going back to April 1980.  REF: UofM

5D. The Chicago Fed National Activity Index (CFNAI) increased to –0.12 in November from –0.50 in October. Three of the four broad categories of indicators used to construct the index increased from October, but all four categories made negative contributions in November. The index’s three-month moving average, CFNAI-MA3, decreased to –0.31 in November from –0.27 in October.  REF: ChicagoFed, November’s Report

5E. (12/19/2024) The Conference Board Leading Economic Index (LEI) for the US increased by 0.3% in November 2024 to 99.7 (2016=100), nearly reversing its 0.4% decline in October. Over the six-month period between May and November 2024, the LEI declined by 1.6%, slightly less than its 1.9% decline over the previous six months (November 2023 to May 2024). The composite economic indexes are the key elements in an analytic system designed to signal peaks and troughs in the business cycle. The indexes are constructed to summarize and reveal common turning points in the economy in a clearer and more convincing manner than any individual component. The CEI is highly correlated with real GDP. The LEI is a predictive variable that anticipates (or “leads”) turning points in the business cycle by around 7 months. Shaded areas denote recession periods or economic contractions. The dates above the shaded areas show the chronology of peaks and troughs in the business cycle. The ten components of The Conference Board Leading Economic Index® for the U.S. include: Average weekly hours in manufacturing; Average weekly initial claims for unemployment insurance; Manufacturers’ new orders for consumer goods and materials; ISM® Index of New Orders; Manufacturers’ new orders for nondefense capital goods excluding aircraft orders; Building permits for new private housing units; S&P 500® Index of Stock Prices; Leading Credit Index™; Interest rate spread (10-year Treasury bonds less federal funds rate); Average consumer expectations for business conditions.  REF: ConferenceBoard, LEI Report for November  (Released on 1/6/2025)

5F. Probability of U.S. falling into Recession within 3 to 4 months is currently at 67.2% (with data as of 12/16/2024 – Next Report 12/30/2024) according to RecessionAlert Research.  Last release’s data was at 68.53%.  This report is updated every two weeks. REF: RecessionAlertResearch

5G. Yield Curve as of 1/6/2025 is showing Normal.  Spread on the 10-yr Treasury Yield (4.61%) minus yield on the 2-yr Treasury Yield (4.26%) is currently at 35 bps.  REF: Stockcharts   The yield curve—specifically, the spread between the interest rates on the ten-year Treasury note and the three-month Treasury bill—is a valuable forecasting tool. It is simple to use and significantly outperforms other financial and macroeconomic indicators in predicting recessions two to six quarters ahead.  REF: NYFED

5H. Recent Yields in 10-Year Government Bonds.  REF: Source is from Bloomberg.com, dated 1/6/2025, rates shown below are as of 1/6/2025, subject to change.

The 10-Year US Treasury Yield… REF: StockCharts1, StockCharts2

10-Year Real Interest Rate at 1.81261% as of 12/11/24.  REF: REAINTRATREARAT10Y

Federal government Interest Payments increased $20B+ to $1.1166 Trillion as of Q3-2024.   REF: FRED-A091RC1Q027SBEA

Interest payments as a percentage of GDP increased from 1.84853 in 2022 to 2.37794 as of 10/18/24.   REF: FRED-FYOIGDA188S

5I. (1/6/2025) Today’s National Average 30-Year Fixed Mortgage Rate is 7.10% (All Time High was 8.03% on 10/19/23).   Last week’s data was 7.06%.  This rate is the average 30-year fixed mortgage rates from several different surveys including Mortgage News Daily (daily index), Freddie Mac (weekly survey), Mortgage Bankers Association (weekly survey) and FHFA (monthly survey).  REF: MortgageNewsDaily, Today’s Average Rate

The recent spike in the 30-year fixed-rate jumbo mortgage to 7.10%, compared to Freddie Mac’s rate at 6.91% and the Mortgage Bankers Association (MBA) rate at 6.75%, highlights key differences in the mortgage market. Jumbo mortgages, which exceed the conforming loan limits set by government agencies like Freddie Mac, typically carry higher interest rates because they are riskier for lenders. These loans are not backed by government entities, which increases the risk for lenders and, consequently, leads to higher rates. In contrast, Freddie Mac and MBA provide averages for conforming loans, which meet federal guidelines and have lower risk due to government backing, keeping their rates lower.

(12/16/24) Housing Affordability Index for Oct = 102.3 // Sep = 105.5 // Aug = 98.6 // July = 95 // June = 93.3 // May = 93.1 // April = 95.9 // March = 101.1 // February = 103.0. Data provided by Yardeni Research.  REF: Yardeni

5J. Velocity of M2 Money Stock (M2V) with current read at 1.390 as of (Q3-2024 updated 12/19/2024).   Previous quarter’s data was 1.389.  The velocity of money is the frequency at which one unit of currency is used to purchase domestically- produced goods and services within a given time period. In other words, it is the number of times one dollar is spent to buy goods and services per unit of time. If the velocity of money is increasing, then more transactions are occurring between individuals in an economy.  Current Money Stock (M2) report can be viewed in the reference link.   REF: St.LouisFed-M2V

M2 consists of M1 plus (1) small-denomination time deposits (time deposits in amounts of less than $100,000) less IRA and Keogh balances at depository institutions; and (2) balances in retail MMFs less IRA and Keogh balances at MMFs. Seasonally adjusted M2 is constructed by summing savings deposits (before May 2020), small-denomination time deposits, and retail MMFs, each seasonally adjusted separately, and adding this result to seasonally adjusted M1. Board of Governors of the Federal Reserve System (US), M2 [M2SL], retrieved from FRED, Federal Reserve Bank of St. Louis; Updated on November 26, 2024.  REF: St.LouisFed-M2

Money Supply M0 in the United States increased to 5,616,500 USD Million in November from 5,567,200 USD Million in October of 2024. Money Supply M0 in the United States averaged 1,160,672.82 USD Million from 1959 until 2024, reaching an all-time high of 6,413,100.00 USD Million in December of 2021 and a record low of 48,400.00 USD Million in February of 1961.   REF: TradingEconomics, M0

5K. In November, the Consumer Price Index for All Urban Consumers rose 0.3 percent, seasonally adjusted, and rose 2.7 percent over the last 12 months, not seasonally adjusted. The index for all items less food and energy increased 0.3 percent in November (SA); up 3.3 percent over the year (NSA). December 2024 CPI data are scheduled to be released on January 15, 2024, at 8:30AM-ET.  REF: BLS, BLS.GOV

 5L. Technical Analysis of the S&P500 Index.  Click onto reference links below for images.

• Short-term Chart: Bullish to Falling on 1/7/2025 – REF: Short-term S&P500 Chart by Marc Slavin (Click Here to Access Chart)

• Medium-term Chart: Bullish on 1/7/2025 – REF: Medium-term S&P500 Chart by Marc Slavin (Click Here to Access Chart)

• Market Timing Indicators – S&P500 Index as of 1/7/2025 – REF: S&P500 Charts (7 of them) by Joanne Klein’s Top 7 (Click Here to Access Updated Charts)

• A well-defined uptrend channel shown in green with S&P500 still on up trend.  REF: Stockcharts

• S&P500 and CBOE Volatility Index (VIX) as of 1/7/2025.  REF: FRED, Today’s Print

5M. Most recent read on the Crypto Fear & Greed Index with data as of 1/8/2025au is 78 (Extreme Greed).  Last week’s data was 64 (Greed) (1-100).  Fear & Greed Index – A Contrarian Data.  The crypto market behavior is very emotional. People tend to get greedy when the market is rising which results in FOMO (Fear of missing out). Also, people often sell their coins in irrational reaction of seeing red numbers. With the Crypto Fear and Greed Index, the data try to help save investors from their own emotional overreactions. There are two simple assumptions:

• Extreme fear can be a sign that investors are too worried. That could be a buying opportunity.
• When Investors are getting too greedy, that means the market is due for a correction.

Therefore, the program for this index analyzes the current sentiment of the Bitcoin market and crunch the numbers into a simple meter from 0 to 100. Zero means “Extreme Fear”, while 100 means “Extreme Greed”.  REF: Alternative.me, Today’sReading

Bitcoin – 10-Year & 2-Year Charts. REF: Stockcharts10Y, Stockcharts2Y