In the last week of trading, investors saw the return of volatility to the markets. This began from the get-go as a research paper was published in the previous weekend regarding a new A.I. model, DeepSeek, which was developed in China and supposedly created with a much lower budget compared to the leading U.S. developed A.I. models. Additionally, at this time, this model appears to be more advanced than many of the leading U.S. developed A.I. models. This report was a bombshell for many investors in the A.I. space and once trading opened on Monday, many of the stocks closely tied to the ‘A.I. build-out narrative’ were sold in punishing fashion and many investors took a ‘shoot first and ask questions later’ approach. As time passed and investors had more time to further digest the report’s findings, it proved that much of the deep and concentrated selling that occurred on Monday was largely overdone as many of these stocks quickly bounced off of the Monday lows. Monday’s panic selling was not the only element of volatility experienced over the past week. After opting to delay any new tariffs during the first week back in office, this week, the Trump administration began to make good on the promise that new tariffs were on the way. By mid-week, news began to break that new tariffs were going to be imposed on Canada, Mexico, & China beginning on Saturday and perhaps that additional tariffs for EU countries were also coming down the pike. The news that fresh tariffs were now being levied began to further rattle investors and reignited the inflationary fears surrounding this new policy.

Especially so, after the FOMC meeting this past week where the Fed opted to leave rates unchanged due to persistent and stubborn inflation that seemingly refuses to return to the desired rate of 2.0%. The fear that more inflation could be on the way due to these new tariffs spooked investors toward the end of the week and resulted in the further selling we witnessed into the close on Friday. Now with all that said, and even though two of the three major indexes finished the week in the red, the past week was not all bad. The most crucial earnings reports we were watching, for the most part, came in quite well, which supplied support for the market. Additionally, breadth remained strong as the Equal Weighted S&P 500 index continued to make short term higher highs and the NYSE Advance/Decline index did not make a new short term low. Finally, all three major indices finished the month of January higher which is a strong indicator for the remainder of the year. We anticipate that in the short term we are likely in for a bit more volatility until we get through earnings season and these first few weeks of the new administration while new policy is being rolled out at a rapid pace. Overall, the Bull Market is still in a healthy condition with nearly 60% of S&P 500 stocks in an uptrend. Should Q4 earnings continue to show strong results, we feel the market will find its footing and begin trading higher in short order.

Key Events to Watch this Week

  • Q4 Earnings Continue
  • January Jobs Report
  • Further New Policy Announcements

After the market’s optimism faded towards the end of the week, investors will be looking for good news this week to reignite the ‘animal spirits’. After last week’s jam-packed week, this coming week is certainly not lacking for potential market moving events. This week another large contingent of S&P 500 companies are due to report their Q4 earnings, making this a massively consequential week of earnings yet again. This will begin on Monday after the close when market darling, Palantir Technologies Inc., reports their Q4 numbers. This will be followed by Alphabet Inc., which will report on Tuesday once the market closes. Finally, on Thursday, investors will see the Q4 results for both Amazon.com, Inc. & Eli Lilly and Company. There are numerous other major companies set to report but these will be some of the most significant. On Friday, an important economic report in the January Jobs report will be published. Investors will be anxious to dive into this report to see if first the labor market is remaining resilient but secondly to make sure there were no unexpected or outsized gains in hourly wages. The bullish set up for the market will be seeing the jobs added meet or beat expectations, for unemployment to meet expectations, and for hourly wages to meet or slightly miss expectations. Then finally, as we are still only in the first few weeks of the new Trump administration, new policy announcements any day are highly likely, and they have already proven to be market moving. At the furious pace we have seen new policy rolled out thus far, it is prudent to be mindful that new announcements could be coming at any time.

Thank you for reading this week’s edition of the Weekly Market Periscope Newsletter, I hope you enjoyed it. Please lookout out for the next edition of the newsletter as we will give you a preview of the upcoming week’s important market events.

Thanks,

Blane Markham

Author, Weekly Market Periscope

Hughes Optioneering Team

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