From Wall Street to Main Street
Highlights from the past week
| Market / Macro Economic Summary Markets diverted this week as the Dow Jones was the lone index marking positive returns as the Nasdaq and S&P 500 both were down. The Dow came in at a .3% gain on the week, leading the way at 4.7% year to date. The Nasdaq lost 1.6% weekly and gained 1.6% year to date and the S&P 500 lost 1% weekly and was up 2.7% YTD. Markets had several events this week that affected returns so let’s tackle them one by one. Personal Consumption Expenditures Price Index (PCE), rose 0.3% in December, in line with expectations. The core reading, which excludes food and energy, rose 0.2%, also as expected on Wall Street, while annual core growth was 2.8%. While we seem to have stalled towards the 2% Fed target, it also seems Fed Chair Powell is less concerned about making it all the way down to 2%. Speaking of the Fed, we also had a Fed meeting in which the Federal Reserve kept the Fed Funds rate steady at 4.25%. It seems we’re expected to remain here for the rest of the year. One thing I’d like to ensure I cover, because I think it is rather important, is the fact that investors believe the market is “expensive” at current levels, but as earning come in above expectations, it makes the markets look more reasonably priced. We’re early in the quarter, but S&P 500 earnings are on track to grow roughly 12% which, if achieved, would be the strongest pace since 2021. Earnings growth is expected to be broad as well, with seven of the 11 sectors forecast to report higher earnings. Strong earnings momentum is expected to carry over into 2025. This is key to showing that, while markets trade at lofty Price to Earnings, the higher the earnings, the lower it will drive the P/E ratio. In my perspective, healthy economic conditions and potential for deregulation should drive strong earnings growth this year, helping to sustain the bull market. Additionally, I’d like to explain one event that happened Monday that shook technology stocks. We saw a sharp sell off due to Chinese AI startup DeepSeek. The company's AI model reportedly performs comparably to those of leading U.S. technology companies, despite being developed at a fraction of the cost and requiring less computing power. While DeepSeek's development and true costs have yet to be verified, it has raised questions as to whether leading U.S. AI companies may be overspending and need to be more efficient. Despite the concerns around the competition coming from Chinese companies like DeepSeek, we continue to see U.S. technology firms remaining leaders of the global AI market, benefiting from deep financial resources, talent and technology to drive innovation. We expect these companies to respond to this competitive threat, especially considering DeepSeek's AI model is open-source. This means the programming and coding behind its performance is transparent and openly available, potentially allowing competitors to incorporate any enhancements to improve their own AI models. Enhanced performance, lower development costs, and reduced computing-power demands should lead to further adoption of AI among businesses and consumers, potentially driving more investment in the space. Company Specific / Micro Economic Summary Tesla (TSLA) Shares of the electric car maker rose 4% despite missing expectations on the top and bottom-lines. Earning per share of $0.73 cents were four cents short of the expectations of $0.77. Revenue of $25.7 billion was short of the analyst calls for $27.1 billion. CEO Elon Must was very optimistic on the conference call that he “sees a path” for the company to be worth more than any other company in the world by a long shot. He said he expects unsupervised Full-Self-Drive as a paid service in the next 12 months. He was also keen on the company’s robot, Optimus, bring more revenue to Tesla than the cars themselves do today. Meta aka Facebook (META) Shares of the social media company rose nearly 2% on the back of a strong quarter Earnings per share of $8.02 came in much better than the Wall street calls for $6.74. Revenue of $48.4 billion was also higher than the estimates of $47 billion. CEO Mark Zuckerberg was confident that the future of AI, from a form factor perspective, would be moving towards wearable technology, like its Meta-Ray Ban smart glasses more so than via the current Iphone. Microsoft (MSFT) Shares fell 6% despite a top and bottom-line beat. Earnings per share of $3.23 came in above the calls for $3.12. Revenue of $69.6 billion also came in stronger than the analyst expectations of $68.8 billion. This was frustrating to see as CEO Satya Nadella said AI related business grew to over $13 billion, up over 175% year over year. International Business Machines (IBM)Shares rocketed over 12% higher on the back of a strong quarter. Revenue came in at $17.6 billion was better than the calls for $17.5 billion. Earnings per share of $3.92 also came in stronger than the estimates of $3.78. CEO Arvind Krishna said they continue to see double digit growth in software as the Red Hat acquisition continues to pay dividends. He believes the firm can achieve a 5% revenue growth in 2025 and free cash flow of $13.5 billion. Apple (AAPL) Shares of the world’s largest company rose over 1% as the company reported a strong quarter. On the revenue front, $124 billion matched the Wall street estimates. Earnings per share of $2.40 were five cents better than the calls for $2.35. CEO Tim Cook expressed his bullishness of Apple Intelligence and is looking forward to it being available in more languages. He was rather neutral in his commentary the potential tariffs that would impact China sales and only said Deep Seek’s AI innovations were a positive for driving efficiency. |
| Parting Thoughts We welcome an opportunity to discuss the above detail and wish you much success in the rest of your week! Regards, Erick J. Palacios, MBA Wealth/Fiduciary Advisor |