Last week, the US stock market continued its rebound, with the S&P 500 index briefly surpassing the monumental 6100-point markThis noteworthy movement comes on the heels of the unveiling of the Stargate program, a staggering $500 billion initiative that has reignited excitement within the artificial intelligence (AI) sectorIndeed, the industry has seen a significant boost as attention turns to the impact of this investment on technological developments.
Historical data indicate that the final week of January often sees positive movements in the stock marketHowever, lingering uncertainties stemming from the US's trade policies pose potential downward pressuresThese concerns have been reflected in various recent economic data reports and surveys, painting a complex picture for investorsAdditionally, investors are closely monitoring the forthcoming Federal Reserve meeting, seeking clues regarding the future direction of monetary policy
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Reports from major technology firms such as Apple are also anticipated to potentially stir significant market reactions.
As the Federal Reserve gears up for its meeting, the landscape of US economic data has presented some unexpected cracksSignals suggest external concerns surrounding the government's nascent policies remain deeply rooted, which could pose a variable for future monetary decisionsAnalysts note that the expansion rate of the service sector has dramatically slowed as we entered the year, with the composite Purchasing Managers' Index hitting a nine-month low.
Chief business economist at IHS Markit, Williamson, has highlighted the widespread effects of rising input costs and sale prices across goods and servicesHe cautioned that if these trends continue, fears regarding economic health could intensifyThe interplay of robust economic growth, a strong job market, and higher inflation could coax the Federal Reserve into adopting a more hawkish stance than anticipated.
Concurrently, the University of Michigan's consumer sentiment survey conducted in January revealed the first dip in consumer confidence in six months
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While income growth remains healthy, fears surrounding unemployment appear to be escalatingApproximately 47% of respondents anticipate an increase in unemployment over the next year—the highest level recorded since the pandemic beganNotably, one-year inflation expectations have climbed to 3.3%, marking a rise of 0.5 percentage points and surpassing levels seen at the onset of the pandemic.
According to Schwartz, a senior economist at Oxford Economics, while the US economy remains in a phase of healthy expansion, uncertainties are on the rise due to new tariff threats, which have led consumers to fret about resurgent inflationThe current labor market appears to be in a delicate balance, with indications that low-income consumers are grappling under mounting pressures.
In terms of bond market activity, the yields on US Treasuries have fluctuated only slightly, with the closely watched two-year Treasury yield dipping by 0.1 basis points to 4.271%, while the benchmark ten-year Treasury rose by 1.4 basis points to 4.624%. Futures tied to the federal funds rate suggest a pause in rate hikes during January, paving the way for the first rate cut possibly in June.
Market participants are keenly awaiting additional insights from the upcoming Federal Reserve meeting regarding its monetary policy stance, particularly concerning its dual mandates of managing inflation and employment
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Lee Roach, the chief economist at the US-based LPL Financial Group, remarked, “While the labor market remains tight overall, some sectors are beginning to slow their hiring paceAs long as wage growth surpasses inflation, we will see robust economic activity, and the Fed will not cut rates as previously expected.”
As January draws to a close, the US stock market exhibited solid performance overall, despite a dip at the end of the weekThe S&P 500 index achieving intraday highs while the Dow Jones and NASDAQ are both within a 2% proximity of their record levelsData from Dow Jones suggests that communication services and technology sectors are leading the market rally, with Netflix's better-than-expected earnings serving to boost risk appetite amongst investorsThe announcement of the substantial Stargate AI infrastructure initiative has also spurred enthusiasm within the semiconductor sector, with companies like ARM, Oracle, Microsoft, Nvidia, and Broadcom witnessing significant gains.
In market commentary, Truist’s Chief Investment Officer, Leo Renna, noted, “Economic resilience, easing inflation, stable interest rates, and a strong start to earnings season are providing a solid backdrop for the market
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Moreover, technology companies are reasserting their dominance, bolstered by the Stargate project, which underscores the long-term tailwinds and transformative potential of AI.” He added, “In summary, the prevailing theme of this bull market is centered around AI and technology.”
Recent fund flow data indicates that the outflow from US equity funds has slowed to its lowest pace in three weeks as investors continue to weigh the potential for Federal Reserve interest rate cuts against the backdrop of governmental policiesAccording to data from the London Stock Exchange, net selling of US stock funds over the past week fell from a prior outflow of approximately $8.26 billion to $3.2 billionMeanwhile, money market funds recorded a net influx of $32.86 billion, marking the fourth week of inflows over the past five weeks.
Yet, there are voices of caution amidst this bullish sentiment
Jamie Dimon, CEO of JPMorgan, expressed at the Davos Economic Forum in Switzerland that signs of overheating in the US stock market are becoming evident“Asset prices appear a bit inflatedSuch valuations require strong outcomes to justify, which we all hope forI believe that strategies promoting growth can help achieve this, but there are negative factors at play as well, which can catch you by surprise,” he emphasized.
The forthcoming week will see earnings reports from major technology giants including Apple, Microsoft, and MetaBeyond performance metrics, discussions surrounding developments in AI technology, its practical applications, and future capital investment plans are expected to garner significant attention.
Historically, the last week of January has proven to be a period of positive stock market performanceData provider Seasonax notes that since 1928, January has led to positive performance 61% of the time, with an average increase of 1.1%. Of these gains, over half occur in the final week, with an average S&P 500 index increase of 0.6% recorded.
The US has proposed several “growth stimulating” measures—an encouraging sign for bullish investors as these initiatives have the potential to enhance corporate profitability