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WEEKLY MARKET UPDATE

FEBRUARY 3, 2025

A message from our founder.

Tariffs, jobs, and earnings.

Hello ,

Newly imposed U.S. tariffs (and the responses to them by the impacted countries) combine with the jobs report (due to hit the tape on Friday) and the ongoing flood or earnings reports to set the stage for a busy week. Last week, the Dow Jones Industrial Average gained 0.3%, the S&P 500 fell 1.0%, and the Nasdaq dropped 1.6%. So far in 2025, the DJIA is up 5%, the S&P is up 3%, and the Nasdaq is up 2%.

Over the weekend, President Trump imposed tariffs on China, Mexico, and Canada. Canada announced their own retaliatory tariffs and, as of this writing, Mexico intends to respond. China said it will file a complaint with the World Trade Organization. The markets likely will experience some volatility as Wall Street assesses the impact of the tariffs. Items to consider are possible increased prices, supply-chain hiccups, changes to consumer spending patterns, and an uptick in overall inflation.

Meanwhile, the earnings flow continues. On Monday, Palantir, Tyson Foods, and Clorox are among the companies that will report; on Tuesday, Alphabet, Advanced Micro, Merck, Amgen, and PepsiCo; on Wednesday, Novo Nordisk, Qualcomm, Uber, and Disney; on Thursday, Amazon.com, Eli Lilly, Bristol-Myers Squibb, Honeywell, and ConocoPhillips; and on Friday, Fortive, Kimco, and Cboe Global. Some 178 (or 36%) of the S&P 500 companies have reported for last quarter. Earnings so far are showing 12% growth from the prior-year quarter. That compares to a 9% growth rate last quarter. The Financial sector has had the most companies report, and the growth rate so far is 13%, according to Refinitiv. Argus forecasts S&P 500 EPS growth in 2025 at 12%. For 2026, we forecast 11.

On the economic calendar, the Nonfarm Payrolls report for January comes out on Friday. Though that report will get the most attention, the Call of the Week from Argus’ Chief Economist Chris Graja, CFA, is Nonfarm Productivity. Chris expects growth to top 2%, while the consensus is 1.7%. Chris offers the following thoughts. “While the jobs report provides a timely assessment of how the economy is doing, productivity, though volatile, is the best measure of a country’s long-term prosperity and of workers ability to earn more than the inflation rate. Worker prosperity will dominate the American political landscape for the next four years. Productivity growth also will reflect the degree of success from the billions being spent on Artificial Intelligence.”

Last week, the Federal Reserve kept interest rates unchanged, as expected. Mortgage rates dipped one basis point, with the average 30-year fixed-rate mortgage now at 6.95%, according to FreddieMac. Gas prices fell a penny to an average of $3.10 per gallon for regular gas. The Atlanta Fed GDPNow indicator is forecasting for 1Q and calls for expansion of 2.9%. The Cleveland Fed Inflation Nowcast is forecasting for January and is at 2.85%.

The next Fed rate decision is on March 19, with odds at 17% for a rate cut, according to the CME FedWatch rate tool. After that, the next meeting is in early May.

Previewing Friday's jobs report

On Friday, we expect the Bureau of Labor Statistics (BLS) to provide evidence that U.S. unemployment is low, wages are rising, and payrolls are growing. We should see that there is robust hiring in healthcare but continuing weakness across manufacturing. After last week's FOMC meeting, where members voted unanimously to maintain the fed funds target range at 4.25%-4.5%,

Chair Jerome Powell said that the labor market has cooled, but remains solid. "Overall, a wide set of indicators suggests that conditions in the labor market are broadly in balance," Powell said, adding that, "The labor market is not a source of significant inflationary pressures." The Fed's January 2025 Beige Book, which was released before the meeting, provides this additional nuance. "Contacts in several service industries, notably healthcare, continued to see job growth.

Construction employment increased slightly, while manufacturing employment was flat. Contacts across multiple sectors noted difficulty finding skilled workers, and reports of layoffs remained rare. However, contacts in some Districts expressed greater uncertainty about their future staffing needs."

We expect that the unemployment rate in January was unchanged at 4.1%. The consensus is also 4.1%. We expect that average hours worked ticked down to 34.2 and that growth in average hourly earnings declined to 3.8%. Fed officials expect the unemployment rate to be 4.3% in both 2025 and 2026 based on median estimates.

We expect that nonfarm payrolls increased by 160,000 in January (consensus is 170,000). Estimates suggest that the California wildfires may have reduced payrolls by 15,000-40,000.

Friday's report may also be impacted by new population estimates in the Household survey and benchmark revisions in the Establishment survey. Payroll gains averaged 186,000 in 2024, down from 251,000 in 2023. The three-month average is 170,000. We expect average monthly payrolls to slow to about 115,000 by the end of the year.

Quick hits:

• Report releases: GDP growth slowed to 2.3 percent in the fourth quarter of 2024.
  
  
• Financial market data: AI competition from China led to a semiconductor sell-off.
  
  
• Looking ahead: Economic data this week will focus on business confidence, employment, and consumer sentiment.

Thank you for your continued trust. If you every have a question about the market and how it may impact your portfolio, please don't hesitate to reach out at my contact information below.

Warm regards,

Matthew R. Lang, CDFA®

Financial Advisor

(719) 481-0887

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Market performance

Source: Bloomberg, as of January 31, 2025

The Nasdaq Composite led U.S. averages lower. China’s DeepSeek AI application, which competes with AI applications such as OpenAI’s ChatGPT, moved to the top of the Apple App store. Initial reports indicated the app was developed at a fraction of the cost of OpenAI’s model, leading to sell-offs in semiconductors and the energy sector because of its potential to lead to lower demand for Nvidia GPUs and hardware, which would in turn lead to lower energy demand. The MSCI EAFE Index fared better amid the implementation of U.S. tariffs.

Source: Bloomberg, as of January 31, 2025

Treasury yields moved modestly lower amid DeepSeek news and tariff uncertainty. Intermediate and long-term yields were most affected. The 2-year moved lower 3.4 basis points (bps), closing at 4.24 percent. The 10- and 30-year dipped 5.6 bps and 3.5 bps, respectively, closing at 4.57 percent and 4.81 percent, respectively.

What's coming up this week?

Economic data this week will focus on business confidence, employment, and consumer sentiment.

• On Monday, the week kicks off with the ISM Manufacturing index for December. Economists expect to see modestly higher manufacturer confidence.
  
  
• The ISM Services index for December is expected on Wednesday. Service sector confidence is set to improve for the second consecutive month.
  
  
• Finally, on Friday, the employment report for December and the preliminary University of Michigan consumer sentiment survey for February will be released. The job report is expected to show that a solid 158,000 jobs were added during the month, which would be a sign of continued healthy labor demand.

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Disclosures: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index. The Bloomberg US Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasury’s daily yield curve. The Bloomberg US Mortgage Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Bloomberg US Municipal Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million. One basis point is equal to 1/100th of 1 percent, or 0.01 percent.

Authored by the Investment Research team at Commonwealth Financial Network.

© 2025 Commonwealth Financial Network®

Lang Investment Services is located at 236 N. Washington St., Monument, CO 80133 and can be reached at (719) 481-0887. Unbiased, Independent Advice. Securities and advisory services offered through Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Adviser. Fixed insurance products and services offered through CES Insurance Agency. Securities and advisory services offered through Commonwealth Financial Network, member www.FINRA.org www.SIPC.org, a registered investment adviser. This communication is strictly intended for individuals residing in the state of Colorado. No offers may be made or accepted from any resident outside these states due to various state regulations and registration requirements regarding investment products and services.

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