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Given a somewhat hectic start to this week, markets, while ending yesterday lower, were soothed somewhat by a Fed that delivered on rate-setting expectations. Also figuring into the calculus/alchemy of market sentiment, were some quick rebuttals from US-based AI developers on the provenance of DeepSeek’s training data set. To be clear, some are attacking the validity of DeepSeek’s data, while others are pointing to savvy hardware configurations and superior coding as the source of the outperformance.

While the big noise of DeepSeek’s weekend announcement has faded, it hasn’t entirely gone away as evidenced by the Technology sector contributing to just over 76% of the S&P 500’s -0.47% result. Of that 76%, 56% was attributable to Nvidia (NVDA) after the company announced it expects shortages of their latest graphics cards due to demand. Once again, the Nasdaq Composite led markets lower, falling 0.51% but this time both the Dow and the Russell 2000 closed down 0.31% and 0.25%, respectively.

Further evidence of the market's calming include the Cboe Market Volatility (VIX) ending the day essentially flat, at 16.56 as well as gold barely moving, at $2,757.70/oz.

The Tematica Select Model Suite participated in this sentiment strengthening, especially in Nuclear Energy & Uranium and CHIPs Act which, with Rebuilding America sat in slots 1, 2, and 3 in yesterday’s leaderboard. Space Economy took a hit as Apple (AAPL) announced it had enabled Starlink-based satellite service for certain T-Mobile (TMUS) customers, effectively jumping ahead of various network providers that have been working toward a similar solution.
 

Digesting More Big Tech Earnings, Waiting for Friday’s January PCE Report

With the Fed delivering the message many expected - no rate cut and the need to see further sustained progress on inflation - the market’s attention will shift back to earnings from last night and today before ping-ponging back to inflation Friday morning. That’s when the December Personal Consumption Expenditure (PCE) Price Index will be published, and since the PCE is the Fed’s preferred inflation metric it will likely get a fair share of attention.

Should the core figure come in as expected at 2.8% year over year, it will mark the third consecutive month at that level, keeping it above the Q3 2024 average of 2.7%. But our view may be a tad different because of what we saw in the January Flash PMI report from S&P Global (SPGI):

Inflationary pressures meanwhile intensified in January. Both input costs and average selling prices rose at the fastest rates for four months, the rate of inflation of the latter now having increased for two successive months… Higher costs were passed on to customers, with average prices charged for services rising at the fastest rate since last September. An even larger rise was reported for goods…

That’s not the good progress the Fed is looking for and perhaps that explains Fed Chair Powell’s comment yesterday that inflation is “somewhat elevated.” But looking at the 10-year Treasury yield, which was little changed it’s safe to say the market took the Fed’s policy statement and Powell’s presser comments in stride.

Following the January Flash PMI findings from S&P shared above, our thinking is next week’s January splash of data will be more insightful than Friday’s December PCE figures. But before we get to that report, the market will continue digesting quarterly results last night rom Microsoft (MSFT), Meta (META), ServiceNow (NOW), Tesla (TSLA), Lam Research (LRCX), and others as well as this morning’s reports from Caterpillar (CAT), Mastercard (MA), and Check Point Software (CHKP).

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