Strong Earnings, Inflation Propel Market Higher Year to Date

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Strong Earnings, Inflation Propel Market Higher Year to Date

The U.S stock market experienced a robust performance in the week ending January 17, 2025, marking its best week since President Trump’s election victory.

The rose by 2.9%, Poppa gained 3.7% and the increased by 2.5% over the past 5 trading days.

The , representing small-cap stocks, experienced a notable rise of 4% over the past 5 days, closing at 2,275.88. The continues to dominate, although momentum is still weak.

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This positive price action was largely driven by strong earnings reports from major banks. JPMorgan Chase (NYSE:), Goldman Sachs, and Citigroup (NYSE:) reported substantial profit growth, propelling their stock prices to new highs, however momentum is still weak. The financial sector () is up about 4% YTD.

In addition to corporate earnings, economic indicators contributed to market optimism.  The Consumer Price index (CPI) data for December showed a slight moderation in core inflation, which eased to 3.2% from 3.3% in November.  This development fueled hopes that the Federal Reserve might continue lowering Interest Rates.  Consequently, U.S Treasury yields retreated from their recent highs, with the yield decreasing to around 4.61% at Friday’s close, down from 4.77% the previous week.

In the , companies like

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(NASDAQ:) and Broadcom (NASDAQ:) signaled new buying opportunities, contributing to the overall market gains.  Additionally, surged close to record highs, anticipating pro-crypto policies from the incoming administration. At of time of this writing Bitcoin is trading around 104,000 poised to take out its all-time highs.  We view this action in Bitcoin as a risk-on indicator.

Looking ahead, investors are encouraged to gradually increase exposure while remaining vigilant to potential market retreats. The upcoming week will likely show reactions to President Trump’s policy moves, with earnings season ramping up.

(a key risk on indicator) moved back into a bullish phase which is positive with improved momentum.

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However,  the was down on the week and the majority of the modern family members are in warning phases with weak momentum as indicated by our real motion indicator

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All this being said It is interesting to see that and Soft Commodities are in bullish phases. As we zoom out YTD and look at the leading sectors of the market in terms of performance,  leading the charge is the most hated sectors in 2024 which include Energy (+7.71) and (+5.24).

To sum up the recent action in banks looks optimistic for the short-term trend in the market but ultimately, we need to see further positive market action to confirm this trend. Additionally, we need to see easing commodity prices which would allow the Fed to continue easing.

Summary: Markets pivoted higher off of easing inflation concerns supported by strong market internals and strong initial earnings reports, particularly from the financial sector and an expected smooth transfer of power next week.

Risk On

• After going into a warning phase, both the S&P and Nasdaq regained their bullish phases by the end of the week and are not in an overbought condition. (+)
• Volume patterns, except for IWM, have improved along with the price action. (+)
• On a short and longer-term basis, looking at the color charts, Nasdaq has flipped to positive territory. The S&P has turned positive short-term. (+)
• 13 out of the 14 sectors improved, led by financials, energy, and homebuilders. (+)
• The McClellan Oscillator flipped strongly positive this week for both the Nasdaq and S&P, confirming price action, although its starting to run a little rich. (+)
• The 52 week new high new low ratio flipped strongly positive for the S&P confirming price action with everything stacked and sloped for bullish price action. The Nasdaq is more marginally positive. (+)
• By the end of the week, after an iffy *******, risk gauges improved significantly confirming the rally with lumber now outperforming gold on a shorter-term basis. (+)
• The percentage of stocks above key moving averages significantly improved, especially in the S&P. (+)
• Value stocks, on a short-term basis, are outperforming growth and the broader S&P. With this week’s action, both value and growth are looking more positive for equities in general. (+)
• Bitcoin exploded this week and as of Friday, BTC is trading over $104k and looking explosive and acting as a risk-on instrument. (+)
• Current economic reports show inflation easing and may have flushed out on the downside with rates stablizing or easing. Short-term rates had a key reversal, regaining its 50 and 200-Day moving average, further supporting less aggressive Fed action with the yield curve normalizing. (+)
• Seasonals for both the S&P and IWM are still positive overall to mid-February and the market is acting consistent with that historical trend. (+)

Neutral

• Volatility sold off with the huge market rally, though short-term volatility futures closed up on Friday despite the strong market, potentially signaling some underlying nervousness regarding the long weekend. The cash index closed in a bear phase, though still elevated from December lows. (=)
• Semiconductors tested their 200-Day Moving Average and regained a bullish phase and is outperforming the S&P benchmark. 5 of the six members of the modern family closed in warning or bear phases giving a mixed signal. (=)
• The rally in gold may have run out of steam unless we can clear the highs of this week. (=)
• Real motion momentum in the indexes is lagging significantly behind the price action on daily charts but remains intact on weekly charts (=}

Risk-Off

• Foreign markets, both emerging and more established, are in confirmed bear phases, and  they unconvincingly bounced from oversold levels this week. (-)

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#Strong #Earnings #Inflation #Propel #Market #Higher #Year #Date

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