Weekly Commentary for the week ending January 11, 2025

2025 Starts Amid Political Shifts

Key Points:

Economic fundamentals in the U.S. and Canada remain robust as 2025 begins, with positive GDP growth, easing inflation, and strong labor markets. December jobs data surpassed expectations in both countries, with wage growth outpacing inflation—a boost for consumer sentiment and spending.

However, stronger economic performance has reduced the likelihood of further central bank rate cuts, pushing bond yields higher and pressuring stock markets. Despite potential volatility, earnings growth and resilient fundamentals support the ongoing bull market.

Political transitions are underway, with U.S. President-elect Trump set for inauguration on January 20, and Canadian Prime Minister Trudeau resigning but remaining in office until a new Liberal leader is chosen. While politics can influence sentiment, markets remain focused on economic and earnings trends.

With positive labor market and economic indicators, pullbacks may offer investment opportunities amid continued expansion.

Weekly Market Insights: Navigating Uncertainty and Finding Opportunities

The market's short-term fluctuations are not merely noise—they're opportunities to assess our positions, adapt our strategies, and reinforce our long-term goals. This past week was no exception, with U.S. equities seeing broad declines.

Market Overview

The S&P 500 and Nasdaq posted their second consecutive week of losses, and small-cap equities, as represented by the Russell 2000, gave back gains achieved in prior weeks. The selloff affected a diverse range of sectors, from media and fund managers to China tech, telecom, and investment banks. Even semiconductor giants, such as Nvidia (-5.9%), saw notable weakness.

However, there were bright spots. Energy (+0.90%), healthcare (+0.52%), and materials (+0.14%) demonstrated resilience, with airlines, drug stores, industrial metals, and precious metal miners among the week’s outperformers. This divergence highlights the importance of sector rotation and tactical positioning in a volatile environment.

WealthTrust Long Term Growth Portfolio Weekly Top 10

Key Drivers Behind the Moves

1. Economic Data Surprises:
   • December payrolls surged past expectations with a 256K increase, underscoring a resilient labor market. Unemployment dipped to 4.1%, and while wage growth showed moderation, it wasn't enough to assuage concerns about inflationary pressures.
   • The Michigan Consumer Sentiment report highlighted rising inflation expectations, with the 1-year outlook hitting a high not seen since May 2024.
2. Rates and Dollar Dynamics:
   • Treasury yields climbed, with the 2-year hitting a three-month high and the 10-year yield reaching levels last seen in late 2023. The dollar strengthened for the sixth straight week, up 0.7%, adding headwinds for multinational companies facing currency-related revenue impacts.
3. Fed Policy Outlook:
   • Hawkish tones dominated after the payrolls report, with rate cut expectations for 2025 being scaled back significantly. The market now sees fewer cuts, with the first potentially delayed until later in the year. This evolving narrative is a crucial factor influencing valuations, particularly in rate-sensitive sectors like tech.

Sector and Corporate Highlights

Despite broad market weakness, there were standouts:

• Energy benefitted from a 3.5% rise in WTI crude, reflecting improving fundamentals.
• Healthcare gained as life sciences and vaccine developers delivered positive updates.
• Discount retail showed resilience, driven by solid December sales from companies like Costco (+2.2%).

On the corporate front, M&A activity captured headlines, with significant deals such as Constellation Energy’s acquisition of Calpine (+20.9%) and Stryker’s acquisition of NARI (+59.3%). Earnings season also kicked off with robust reports from Delta Air Lines (+13.5%) and Walgreens (+23.8%), underscoring the potential for company-specific drivers to overcome macro headwinds.

The Bigger Picture

This week’s developments reaffirmed the balancing act between inflation control and economic resilience. While the Fed remains cautious, the labor market's strength and persistent inflation expectations suggest that monetary policy will stay restrictive in the near term. The implications for equity markets are clear: valuations in high-growth areas will remain under pressure, but sectors tied to economic growth or defensive positioning, like energy and consumer staples, may offer relative stability.

Opportunities in Volatility

For investors, the current environment underscores the importance of diversification, sector selectivity, and a focus on quality:

• Resilient Sectors: Energy and healthcare remain attractive, given their relative insulation from rate pressures and favorable demand dynamics.
• Earnings Growth: Companies with strong pricing power and operational efficiency, such as discount retailers, can outperform as consumers adjust spending.
• Precious Metals: With gold up 2.3% this week, exposure to inflation hedges could complement portfolios in this uncertain rate environment.

Looking Ahead

The upcoming week will bring critical insights with the release of the December CPI and the start of earnings reports from major financial institutions like JPMorgan and Goldman Sachs. Investors should monitor these data points for clues on inflation’s trajectory and the health of corporate America.

Final Thoughts

While this week tested investor sentiment, it's a reminder that periods of uncertainty often create the foundation for future opportunities. Staying disciplined, focusing on fundamentals, and aligning portfolios with the evolving economic landscape are the keys to navigating these markets successfully.