Market Wrap

Increasingly, Broadcom (AVGO) seems to be inching its way to replacing Tesla (TSLA) as the 7th pillar in the MAG 7, if only because of its continued appearance in the top 10 contributors to S&P 500 index returns and Tesla showing up in the bottom of that particular barrel. That aside, yesterday was a positive day for broad equity indexes as technology names figured heavily into that equation. The Russell 2000 gained 0.36%, the Dow added 0.38%, the S&P 500 rose 0.67% and the Nasdaq Composite closed 0.98% higher.

Still, with equities rising, Bitcoin and Ether posting gains, the 10-year treasury remaining essentially flat and the VIX closing below 16, gold continues to climb higher, closing in on $3,000/oz. While equity traders and investors alike continue to push valuations higher on what has so far shaped up to be a stronger-than-expected earnings season, gold is sending a warning sign of sorts. Larger institutions and sovereigns seem to be helping gold reclaim its historical position as a safe haven investment as those players look to hedge themselves against potential global geopolitical uncertainties.

The Tematica Model Suite saw a generally positive day yesterday led by Space Economy, AI, and Cloud Computing while EPS Diplomats and Nuclear Energy & Uranium continue to do well on the aforementioned so far strong earnings quarter, and the data center/AI energy play, respectively. EV Transition continues to lag as the fallout from Trump’s directive to end funding for the national EV Charging Network continues.

What Will Powell Say on Inflation and Tariffs Today?

Futures suggest equity markets could give back some of yesterday’s move higher when they open later this morning. Soon after the opening bell, Fed Chair Powell starts two days of semiannual testimony at 10 AM ET today, and you can bet the market will be interested in his comments about the economy, inflation, monetary policy, and any tidbits he may drop about tariffs. Based on recent January data that showed inflation pressures are, at a minimum remaining sticky, we suspect Powell will largely reiterate his recent post-policy Fed meeting presser comments - the need to see inflation data move back toward the Fed’s 2% target on a sustained basis. As we discussed in this week’s The Week Ahead video, “sustained” is the word to focus on.

That’s why we think Powell’s comments on Wednesday at 10 AM ET will be much more interesting since they follow the January Consumer Price Index out at 8:30 AM ET that day. As of this writing, the market consensus sees the sequential reading on core inflation rising other than 0.3% from 0.2% in December, but on a year-over-year basis, the January figure is expected to dip to 3.1% from 3.2% the month before. Here’s the thing, while the year-over-year core CPI data improved considerably in the first half of last year from 3.9% in January to 3.2% in July, it’s been stuck between 3.2%-3.3% ever since. Should we see a higher-than-expected print on Wednesday for annualized core CPI, our thinking is it will likely push the expected timing for the Fed’s next rate cut into 2H 2025. Currently, the market is vacillating between that next cut being in June or July.

Escalating tariffs could complicate the inflation picture and rate cut timing. And either today or tomorrow President Trump is expected to announce the reciprocal tariffs he mentioned on Friday. We already have China’s retaliatory tariffs in force as of yesterday, which range from 10% to 15% and are applied to crude oil, liquefied natural gas, farm machinery, and select other US products. The Trump reciprocal tariffs would impose import duties on products in cases where another country has levied duties on US goods. France and Germany have already shared they would replicate any imposed tariffs. Needless to say, we’ll need to see how this plays out and we suspect this is probably what Powell will say today and tomorrow on the subject.

On the earnings front, AutoNation (AN), Coca-Cola (KO), DuPont (DD), GlobalFoundries (GFS), Marriott (MAR), Shopify (SHOP), and SolarWinds (SWI) all release their quarterly results this morning. We’ll be interested in comments from GlobalFoundries about its end market exposure and capital spending plans given our Digital Lifestyle, Digital Infrastructure, and CHIPs Act models.

After the market close, we’ll get more fodder for our Digital Lifestyle model with quarterly results from DoorDash (DASH), IAC Inc. (IAC), and Lyft (LYFT). On the Aging Population front, we’ll be interested in utilization levels and expansion plans at Welltower (WELL), while for our Guilty Pleasure one it will be what’s shared by Red Rock Resorts (RRR). Given the direction of coffee and cocoa prices, and strength in travel bookings perhaps Red Rock and others like it are the guilty pleasure of choice these days… the earnings report will indicate if that line of thinking is on the money.

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