Earnings & FOMC

DJIA 52-wk: +16.57%, YTD: +4.42%, Wkly: +2.15%

S&P 500 52-wk: +24.74%, YTD: +3.73%, Wkly: +1.74%

NASDAQ 52-wk: +29.11%, YTD: +3.33%, Wkly: +1.65%.

Roundhill Mag Seven ETF 52-wk: +61.75%, YTD: +3.49%, Wkly: +1.59%

During the week of January 20 to January 24, 2025, U.S. stock markets experienced notable gains, with major indices reaching record highs before a slight decline on Friday.

Weekly Performance:

• S&P 500: Increased by 1.7%, closing at 6,101.24 on Friday.
• Dow Jones Industrial Average: Rose by 2.2%, ending the week at 44,424.25.
• Nasdaq Composite: Advanced by 1.7%, finishing at 19,954.30. AP News

On Friday, January 24, the markets saw a slight pullback:

• S&P 500: Declined by 0.3%.
• Dow Jones Industrial Average: Decreased by 0.3%.
• Nasdaq Composite: Dropped by 0.5%.

This downturn was partly due to concerns over semiconductor stocks following a disappointing earnings forecast from Texas Instruments. AP News

Investors are preparing for a busy week with upcoming earnings reports from major tech companies, including Apple, Microsoft, Meta Platforms, and Tesla. Additionally, the Federal Reserve's meeting is highly anticipated, with market participants eager for insights into future monetary policy. Investor's Business Daily

Overall, the week concluded with strong gains across major indices, reflecting investor optimism amid favorable economic indicators and corporate developments.

The AI Boom Continues: Key Sectors to Buy Now:

Artificial intelligence has been the dominant market narrative for nearly two years, driving much of the stock market's gains during this period. While the enthusiasm around AI may seem to be waning, the progress in developing large language models remains truly remarkable. Just last month, OpenAI unveiled its newest model, o3, which some experts believe may have reached the threshold of Artificial General Intelligence (AGI) based on certain metrics.

Though the claim of achieving AGI is debated among researchers, there is no denying the immense power of the latest model. Moreover, the pace of advancements appears to be accelerating.

However, what is also increasing rapidly are the costs, with the computational and energy demands of cutting-edge AI models reaching unprecedented levels. To sustain this breakneck pace of progress, the industry will require an explosion in capital investment, potentially growing tenfold or more. Morgan Stanley estimates that the four largest US tech companies will spend as much as $300 billion this year alone to build out their AI infrastructure.

This surge in funding will primarily benefit three sectors: semiconductors, particularly GPUs and custom silicon; data centers and the companies that service them; and energy and power supply infrastructure, particularly the leading-edge companies. While AI will eventually transform all industries, these three sectors are poised to be the most significant beneficiaries in the near term.

Investors are Becoming More Optimistic. That’s a Warning Sign

Mitch Zacks has noticed that sentiment is starting to shift.

Inflation worries have largely subsided, jobs market weakness appears to be more connected to the surge in immigration than to layoffs and corporate downsizing, and economic growth surprised to the upside in arguably every quarter of 2024. In other words, there are plenty of reasons to be optimistic, and it’s starting to sift through to markets.

In November, the Conference Board reported that a record high number of investors and consumers (57.2%) believed that stock prices would rise in the year ahead. In December, the number dropped to 52.9%, but that’s still elevated relative to previous years. Only a quarter of respondents expected the market to drop. A separate measure of sentiment published by Investors Intelligence found that 70% of traders were bullish on equities and over 60% of advisors had a positive outlook.

It’s early days in the new administration, but I think it’s fair to say that consensus is starting to form around the idea deregulation and the full extension of tax cuts could boost economic activity, business investment, and profits. In this context, a more optimistic outlook may be justified.

The challenge is that high and rising expectations for the cyclical upturn raise the bar for an upside surprise, which is made even harder by the fact that the S&P 500 traded at 22x 2025 earnings at the start of the year. That’s a tough setup, in my view, and one that opens the door for any policy misstep, perceived economic weakness, or earnings misses to have an outsized effect on downside volatility.

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DATA: Barron’s print edition page 28 1/27/25 Market Week Paul R. La Monica

Paragraph: one ChatGPT market recap for the week of 1/20/25-1/24/25 As stated above

Paragraph: two Barron’s print edition 1/27/25 page 28 The Trader Paul R. La Monica

Paragraph: three Weekend Wisdom online edition 1/25/25 The AI Boom Continues Ethan Feller

Paragraph: four Mitch on the Markets online 1/25/25 Investors are Becoming More Optimistic. That’s a Warning Sign Mitch Zacks

Paragraph: five Closing remarks Richie Naso opinion

Paragraph: 6 Factors I’m focused on this week Richie Naso