All that glitters is not gold
The past week exposed just how fragile and unreliable the current rally has been, leaving many investors wondering once again what comes next. Conventional wisdom holds that January sets the tone for the rest of the year, and by that measure, things look reasonably good. CFRA Research Chief Investment Strategist Sam Stovall noted that the January barometer "has a pretty solid track record," pointing out that since 1945, when the S&P 500 finished January in positive territory, the market averaged a 16.2% annual gain versus the typical 9.3% yearly return.
This January was anything but typical. Leading stocks whipsawed throughout the month, the DXY dollar index briefly touched a four-year low, and several AI favorites got hammered despite reporting solid but apparently not solid enough earnings.
Microsoft (MSFT) plunged 11% in January after suffering a historic single-day market cap loss of $357 billion, while Apple (AAPL) shed 4.6% for the month and Tesla (TSLA) dropped 4.3%.
On the flip side, Meta Platforms (META) climbed 8.6% in January, and Google parent Alphabet (GOOGL) jumped 8%.
Finally, this wild January ended with precious metals cratering, giving more than a few thousand investors who had been actively buying gold and silver some serious heartburn. Gold had rallied for seven straight months heading into January, while silver posted nine consecutive months of gains – its longest winning streak on record.
Yet despite the tech sector chaos and the precious metals rout, the S&P 500 still managed to eke out a 1.4% January gain, the Dow Jones rose 1.7%, and the Nasdaq Composite added 1%.
As Stovall also noted, this "atypical January" was driven largely by the unconventional moves from the Trump administration, citing the president's actions in Venezuela, the White House's brief threat to slap new tariffs on European allies over Greenland, and now "increasingly loud war drums regarding Iran."
Still, equity markets remain relatively subdued. At least that's the picture from the major indices, which barely budged over the past week. In fact, the S&P 500 – the main benchmark for U.S. equities – briefly punched through the symbolic 7,000 mark, with the index's all-time high now standing at 7,002.28.
Meanwhile, the ITS World (ITSW) global index also notched a fresh record, hitting 1,593.85.
Despite minimal index movement for the week, the dominant themes were decidedly negative.
The Producer Price Index (PPI), which tracks wholesale inflation, jumped 0.5% in December, blowing past economists' 0.2% forecast. It appears businesses are passing along higher costs from import tariffs, and the market didn't like it one bit.
Investor sentiment took another hit from Trump's nomination of Kevin Warsh to replace Fed Chair Jerome Powell, whose term expires in May. That said, as J.P. Morgan Asset Management Chief Global Strategist David Kelly pointed out, "the new Fed Chair pick doesn't really move the needle," reminding investors that the chair is just one vote on a much larger monetary policy committee.
Market expectations for the rate-cutting path barely shifted after the Warsh announcement: according to CME's FedWatch tool, odds of a rate cut still exceed 50% through the June FOMC meeting.
It's been quite a ride. But where markets head from here remains anyone's guess. So as January wraps up, there's really only one takeaway: investors better buckle up and brace for turbulence. The "January barometer" isn't signaling smooth sailing ahead.
Market expectations for February 2
February is kicking off on a sour note. The culprit, of course, is Friday's disastrous close in precious metals markets. Unfortunately, the weekend brought no relief – the precious metals selloff continues. Naturally, this is dragging down all other markets as well.
Global equities are bleeding red through Monday's midday session. Asia is getting hit hardest, down over 2% on average. Asian markets sat out Friday's carnage and are now playing catch-up. Europe and U.S. index futures are also showing serious pain – losses are pushing 1% in spots. Bottom line: the week is opening with a fierce battle between bulls and bears. And we may be witnessing just the first skirmish.
Even without this rough start, the week was already set to be brutal. This is the peak of earnings season – the most intense stretch yet. The main attractions are obviously two Magnificent Seven juggernauts: Alphabet (GOOGL) and Amazon (AMZN). Alphabet reports Wednesday after the bell, Amazon drops theirs a day later. But there's plenty more to watch. Pharma giants like Eli Lilly (LLY), Novo Nordisk (NVO), Merck (MRK), Amgen (AMGN), Biogen (BIIB), AbbVie (ABBV), and of course Pfizer (PFE) and Bristol-Myers Squibb (BMY) will all be posting results. The tech sector brings two more stars – Advanced Micro Devices (AMD) and 2024's top performer Palantir Technologies (PLTR), which has been struggling lately. Even this roster alone is enough to get earnings watchers fired up. But we're talking hundreds of companies reporting this week, not dozens. So expect plenty of fireworks – hopefully the good kind.
On the macro side, employment data takes center stage. Wednesday brings the usual ADP private payrolls, while Friday delivers the official numbers – unemployment rate and nonfarm payrolls from the BLS. The BLS report will be especially interesting since Trump's guy now runs the show there, raising some obvious questions about data integrity.
So that's what's on deck for the week. Plenty of action, no doubt. But not all of it will be pretty for retail investors. During these volatile days, keep your cool and don't do anything rash. And always remember: not every investment is good for your health!