Weekly Market Commentary February 3, 2025 The Markets Wait! What just happened? Last week, investors were inundated with market-moving data and news. Stock markets gyrated as investors tried to process everything that was occurring. Here’s some of what happened: China surprised the artificial intelligence industry The week got off to a rough start with major United States stock indices declining sharply on concerns about competition from China in the artificial intelligence (AI) space. AI-related technology stocks sold off after a Chinese start up released a less expensive AI model, raising concerns that current tech stock valuations may be too rich, reported Rita Nazareth of Bloomberg. Over the course of the week, markets “clawed back most of those losses thanks to encouraging earnings and company strategy updates, and as some investors re-evaluated the risks U.S. firms face from Chinese competition,” reported Barron’s. Companies performed well Last week, fourth quarter earnings reports bolstered investor optimism. So far, 36 percent of the companies in the Standard & Poor’s (S&P) 500 Index have reported on fourth quarter earnings. Seventy-seven percent of those companies have reported earnings that exceeded estimates, reported John Butters of FactSet. Economic growth continued In addition to upbeat earnings news, economic data released last week showed the U.S. economy continued to grow in the fourth quarter of 2024. “The [economic growth] figures cap another solid year for the world’s largest economy that defied expectations for a marked slowdown as consumers hung tough in the face of persistent inflation and high borrowing costs. The economy grew 2.8 [percent] in 2024 after expanding 2.9 [percent] and 2.5 [percent] in the prior two years, respectively,” reported Molly Smith of Bloomberg. Inflation persisted Last week’s inflation data was less encouraging. The Personal Consumption Expenditures Index, which is one of the Federal Reserve’s favored inflation measures, showed that headline inflation moved higher in December, rising to 2.6 percent annualized from 2.4 percent annualized in the previous month. Core inflation remained steady at 2.8 percent annualized. The Federal Reserve paused The Fed left rates unchanged last week. The range for the federal funds rate remained 4.25 percent to 4.50 percent. The accompanying statement said, “the risks to achieving [the Fed’s] employment and inflation goals are roughly in balance. The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.” Stocks moved lower initially but calmed after the Fed Chair offered assurances that monetary policy is well-positioned for whatever may be ahead, reported Caroline Valetkevitch of Reuters. Uncertainty abounded Government policy proposals arrived at a rapid pace, creating uncertainty. The White House Office of Management and Budget issued a memo temporarily pausing disbursement of government grants and loans, but no one was certain how the pause would affect the economy. “The federal government gives $1 trillion in grants to state and local governments alone, for everything from physical infrastructure and public safety to health and social services. Removing this money from the economy would represent a huge economic shock,” reported Samantha Sanders and Josh Bivens of the Economic Policy Institute. A federal judge temporarily blocked the freeze. Tariffs threats loomed Tariff talk had a more immediate effect on markets than the spending pause. U.S stocks slipped lower on Friday after the White House indicated it will move forward with tariffs on Canada, Mexico, and China, reported Connor Smith of Barron’s. “Investors are bracing for a looming hit to U.S. corporate profits and pressure on inflation if President Donald Trump makes good on his tariff threats, with markets seen as not fully factoring in risks from higher levies on foreign imports,” reported Laura Matthews, Lewis Krauskopf and Suzanne McGee of Reuters. Investors had a lot to consider last week. As the dust settled and the exchanges closed for the week, the Dow Jones Industrial Average had recovered its losses and moved slightly higher. The S&P 500 and Nasdaq Composite Indices had regained some losses but ended the week lower. All three indices had gains over the full month, reported Lisa Kailai Han of CNBC. The yield on the benchmark 10-year U.S. Treasury fell sharply on Monday and moved higher over the week. | 
