The first week of President Trump’s second term has witnessed a generally positive market performance, with the S&P 500 rising by 1.7% and hitting an intraday record high. Investor optimism has been driven by strong quarterly earnings reports from key companies such as GE Aerospace, Union Pacific, and Netflix. The communication services sector experienced the largest gain, increasing by 4%, with Netflix seeing a 14% surge thanks to strong earnings and impressive subscriber growth. Additionally, the healthcare and industrials sectors saw significant increases. For example, Moderna’s share price surged 22% after securing new government contracts, and GE Aerospace reported a solid earnings beat.
However, the energy sector faced some challenges, declining by 2.9%, largely due to falling crude oil futures prices.
Outlook: Expectations for Pro-Growth Policies
Looking forward, investors remain hopeful that the Trump administration will deliver on promises to lower taxes and reduce regulations, which could further stimulate market growth. Optimism is primarily driven by expectations for pro-growth policies as the earnings season continues and more companies release their quarterly results. The possibility of tax cuts, especially for corporations, remains a key theme, with the market positioning itself to benefit from the long-term effects of reduced financial burdens on businesses. The administration’s focus on deregulation, particularly in the financial services sector, also contributes to investor optimism, although it may take time and require cooperation from Congress to fully materialize.
Despite the generally positive economic outlook, investors should be prepared for continued market volatility as policy shifts under the new administration unfold. Central bank decisions, particularly those related to interest rates, as well as upcoming earnings reports from major US tech firms like Apple, Microsoft, and Meta Platforms, could lead to additional market fluctuations. Key economic data releases, including the December personal consumption expenditures (PCE) price index and GDP figures, will provide further insights into the direction of the economy.
Long-Term Investment Strategy
As always, investors are encouraged to maintain a long-term perspective, focusing on the fundamental drivers of economic growth, such as innovation, productivity, and economic stability. During times of market volatility, it may be beneficial to use such fluctuations as an opportunity to rebalance and diversify portfolios.
Latest Market and Economic Update
Asian Market Reaction
Most Asian equities fell on Monday, impacted by a combination of President Trump’s tariffs on Colombia and weak Chinese PMI data, which highlighted ongoing economic struggles in China. However, Hong Kong’s Hang Seng index outperformed, rising by 0.6%, boosted by optimism surrounding the Deep Seek AI model and gains in major Chinese internet stocks.
U.S. Futures and Trade Tensions
In the U.S., equity futures dropped sharply, with Nasdaq futures falling 1.8% and S&P 500 futures down by 0.9%. This downturn was exacerbated by concerns over U.S.-China trade tensions following Trump’s decision to impose tariffs on Colombia.
European Market Performance
European equities closed flat on Friday, after experiencing nine consecutive sessions of gains. The STOXX 50 reached its highest level since 2000, with luxury shares, notably Burberry, outperforming. Auto manufacturers also rebounded, thanks to softer rhetoric from President Trump on tariffs. On a sector-specific note, Novo Nordisk saw a 7% rise following promising results from its weight-loss drug, while ASML ended the week with a 2% drop.
Currency and Commodity Movements
The US dollar strengthened as traders assessed the impact of President Trump’s tariff plans and the upcoming Federal Reserve meeting. The euro slipped to 1.0469 ahead of the European Central Bank’s (ECB) policy meeting. Additionally, concerns over tariff tensions contributed to a weakening of the Mexican peso, with investors keenly watching for potential clues regarding U.S. rate cuts.
Oil Prices Fall Amid Trade Concerns
Oil prices saw a sharp drop on Monday, pressured by Trump’s tariff proposals and his calls for OPEC to lower crude prices. The weak Chinese PMI data also weighed heavily on the market, highlighting economic pressures in the world’s largest oil importer.
Chinese Manufacturing Contraction
China’s manufacturing sector unexpectedly contracted in January, with the PMI falling to 49.1, and non-manufacturing growth slowing to 50.2. The data highlights the need for additional government support in light of the looming U.S. trade tariff threats.
U.S. Economic Data
The preliminary U.S. S&P Services PMI for January dropped to 52.8, signalling slower-than-expected economic growth, while the Manufacturing PMI rose to 50.1, indicating a return to expansion after six months. We expect Fed rate cuts and pro-growth policies to help sustain U.S. economic expansion.
Equities on the Move
The following companies experienced significant movements in their share prices:
- Nvidia: Shares dropped over 5% amid concerns that China’s Deep Seek R1 AI model could lead to more capital-efficient AI development, reducing demand for Nvidia’s expensive AI chips like the H100.
- Novo Nordisk: Shares surged after its experimental drug, amycretin, showed promising results, with patients losing up to 22% of their body weight in clinical trials.
- Burberry: Despite a 4% drop in quarterly sales, the company saw a 9.6% surge in its share price due to strong U.S. holiday sales.
- American Express: Exceeded Q4 expectations with an adjusted EPS of $3.04, driven by robust card member spending.
- Verizon: Reported stronger-than-expected Q4 results, with earnings per share of $1.10 and revenue of $35.7 billion.
- Diageo: Confirmed no intention to sell its Guinness beer brand or stake in Moet Hennessy, despite speculation.
- Monte dei Paschi di Siena: Made a surprise €13.3 billion all-share bid for Mediobanca, signalling a move to strengthen Italy’s banking sector.
- British American Tobacco: Shares rose after the Trump administration withdrew a proposal to ban menthol cigarettes, easing concerns for the tobacco industry.
- Intuitive Machines: Secured a $2.5 million NASA contract to study lunar logistics under the Moon to Mars mission.
- Chewy: A shift to an in-house advertising platform is expected to increase ad revenue from 1% to 3% of total sales.
- NextEra Energy: Progressing toward potentially restarting its Duane Arnold nuclear plant by 2028.
- SES SA: Completed a €625 million buyback, strengthening its bond position amid competition from Starlink.
- Netflix: Bernstein upgraded its rating to “Outperform” and raised the price target to $1,200.
- Apple: Bank of America expects strong Q1 2025 results driven by high iPhone 16 demand.
- United Airlines: TD Cowen raised the price target to $165, following strong Q4 earnings.
- Oklo Inc: Price target nearly doubled to $45, citing the company’s potential in meeting the growing energy demands of AI data centers.
- Sherwin-Williams: Shares rose after Berenberg upgraded to “Buy” with a price target of $420.
- EssilorLuxottica: Raised price target, citing growth from its partnership with Meta on Ray-Ban smart glasses.
Upcoming Data and Events
This week, traders will focus on President Trump’s policy announcements, key central bank decisions, and earnings from major tech companies. The Fed is expected to maintain current interest rates, while the ECB and BoC may cut borrowing costs. Significant economic data releases, including GDP growth and inflation figures, are expected from various regions.
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