Is the market ready to make a new ATH & sustain it?

Is the market ready to make a new ATH & sustain it?

DJIA 52-wk: +15.32% YTD: +4.71% Wkly: +0.55% 

S&P 500 52-wk: +22.16% YTD: +3.96% Wkly: 1.47% 

NASDAQ 52-wk: +26.95% YTD: +3.71% Wkly: 2.58%

VanEck Gold Miners ETF: 52-wk: +52.94% YTD: +21.14% Wkly: +0.54%

During the week of February 10 to February 14, 2025, U.S. stock markets experienced notable gains, with major indices reaching or approaching record highs.

Market Performance:

S&P 500 Index: The S&P 500 closed the week at 6,114.63, reflecting a weekly gain of approximately 1.5%. troweprice.com

Nasdaq Composite: The tech-heavy Nasdaq Composite advanced by 2.6% over the week, ending at 20,026.77. troweprice.com

Dow Jones Industrial Average: The Dow Jones Industrial Average rose by 0.5% during the week, closing at 44,546.08. troweprice.com

Inflation Data: The Bureau of Labor Statistics reported that the Consumer Price Index (CPI) rose by 0.5% month-over-month in January, with a year-over-year increase of 3.0%. This acceleration in inflation influenced market expectations regarding future Federal Reserve policies. troweprice.com

Federal Reserve Commentary: Federal Reserve Chair Jerome Powell, in his testimony before the Senate Banking Committee, acknowledged the higher-than-expected inflation figures, indicating that while progress has been made in controlling inflation, policy would remain restrictive for the time being. troweprice.com

Trade Policy Developments: President Donald Trump announced plans to develop reciprocal tariffs on countries taxing U.S. imports, aiming for implementation by April 1. This announcement introduced some uncertainty, but markets reacted positively to the delay in immediate tariff impositions. reuters.com

Technology: The technology sector led the market's upward movement, with companies like Nvidia and Apple contributing significantly to Nasdaq’s performance. reuters.com

Consumer Discretionary: Companies such as Airbnb experienced substantial stock price increases following strong quarterly earnings reports. reuters.com

Overall, the combination of robust earnings, economic resilience, and cautious optimism regarding trade policies contributed to the positive momentum in the U.S. stock markets during this week.

The stock market appeared to weather too-hot inflation data this past week well enough. A finer look paints a more troublesome picture.

The Nasdaq Composite COMP +0.41% advanced 2.2%, the Dow Jones Industrial Average DJIA -0.37% gained 0.7%, and the S&P 500 index SPX -0.01%, which rose 1.4%, even flirted with an all-time high—trading above its record close of 6118 but below its record intraday high of 6128.

A new high is great, but in this case, it might not be the good news it appears to be. The harsh reality is that the S&P 500 has been stuck in a trading range for the past four weeks, never trading much lower than 5920 to the downside or much above 6120 to the upside. Even the index’s break above its closing high could be seen as a sign of weakness, not strength. It was only up a few tenths of a percentage point on Friday, unable to muster a convincing rally.

“The initial breakout is tentative, with a follow-through being needed to keep it alive,” writes CappThesis’ Frank Cappelleri.

This isn’t the type of market that makes everyone particularly comfortable. President Donald Trump’s election win has created chaos in Washington, with investors still trying to figure out which tariffs are coming and when, as well as how DOGE’s rampage through the federal bureaucracy will impact the bottom line of companies that are on the receiving end of government spending.

But it’s not just politics creating a sense of unease. The consumer price index rose a hotter-than-expected 3% year over year in January, a tick above expectations and well above the Federal Reserve’s 2% goal. Not only does it make more interest rate cuts less likely, it raises the specter that inflation could become a much bigger problem if the central bank does move again.

“If the Fed cuts interest rates too early, it increases the likelihood that we will see a repeat of the 1970s,” writes Torsten Slok, chief economist at Apollo Global Management.

At the same time, most stocks are showing signs of topping out. The Invesco S&P 500 Equal Weight RSP -0.10% exchange-traded fund (ticker: RSP) dropped 1% at its low on Wednesday, more than the market-cap-weighted S&P 500’s 0.8% decline, and it experienced a meeker recovery as well. The equal-weighted index rose just 0.7% this past week, about half the S&P 500’s gain, with economically sensitive areas performing poorly. It’s a sign that much of the recent economic strength may already be reflected in stocks, leaving them with more risk if the economy disappoints.

“The market narrative has shifted to the downside risks to economic growth,” wrote analysts at research firm Quant Insight.

Rather than climbing this wall of worry, the S&P 500 appears to be stuck in the mud. And if it doesn’t stage a real breakout soon, the path of least resistance might be lower. If the index drops, it could find support at its 200-day moving average of 5680, says Fairlead Strategies’ Katie Stockton.

A drop to that level means the index would fall 7%, tolerable if painful, as long as there isn’t a shock to the economy or corporate earnings that goes beyond the current concerns about tariffs. “The risk/reward isn’t great for new longs [buyers of stock],” says Stockton.

That gives us pause.

The news cycle has been moving fast in 2025, with a flurry of policy announcements from the Trump administration. However, the story that has arguably been most impactful to markets did not have any connection to U.S. politics at all.

It was the announcement of a new, powerful artificial intelligence model from China created by a startup called DeepSeek.

Up until the moment ‘DeepSeek R1’ was released, there was a long-held assumption that the U.S. was comfortably winning the AI race. The launch of ChatGPT two years ago was viewed as a landmark moment for the nascent technology, with OpenAI as the clear frontrunner. The AI race—as market participants largely understood it—was confined to U.S. mega-cap technology companies spending hundreds of billions of dollars on chips and data centers needed to develop models and push the economic transformation ahead. The competition was under-capitalized, and far behind.

But then came the release of DeepSeek R1, which demonstrated capabilities on par with leading American firms, while also achieving significant breakthroughs in reasoning—a vital area in AI research that many experts consider key to achieving human-level intelligence.

The proverbial ‘gut punch’ to the U.S. tech sector, however, was that DeepSeek developed its model for a fraction of the cost of U.S. firms, by utilizing creative engineering methods. Some estimates suggest that DeepSeek used only $5 million worth of chips to train a previous model, though this figure excludes research and experimentation costs. Regardless, the actual number is likely nowhere near the hundreds of billions of dollars being spent by major U.S. tech players.

For all the worry over DeepSeek’s arrival and what it means for mega-cap U.S. technology companies, there is a counter theory, known as Jevons Paradox, that suggests that more efficient and cheaper AI models will ultimately increase demand for AI services, ‘lifting all boats’ in the process. Surging demand, the argument goes, would sustain chip makers (even high-end ones) and make all of the capex worthwhile.

Time will tell. In the short run, investors are correct to question where the return on investment for mega-cap tech players will come from, assuming the barrier to entry in creating AI models is relatively low—as proven by DeepSeek. In the long run, I think this episode argues for maintaining exposure across the economy, not just in the sector responsible for developing AI.

Gold has surged. Why Gold Mining Stocks Are a Better Bet.

The price of gold has soared, but gold stocks haven’t kept up. And that’s an opportunity for investors to play the catch-up trade in the precious metal’s miners.

Gold has been unstoppable this year —and even longer. The metal traded at its eighth record high of the year on Tuesday, before pulling back to finish the day lower. Still, gold futures have gained 11% in 2025 after rising 27% in 2024, its biggest one-year rise on record.

Gold’s rise hasn’t been driven by the usual U.S. suspects—uncertainty and inflation among them—though they have helped. You have to look beyond America’s borders to find the real reasons. Central banks have been buying gold as they look for ways to diversify out of the dollar after the U.S. and its allies froze Russia’s central bank assets following the invasion of Ukraine. The People’s Bank of China has been a big buyer of the precious metal, as have Turkey, Russia, and Poland. China has even allowed its insurance companies to allocate more of their investments to gold.

Investors, too, have been putting more money into gold. Global investment demand increased 25% in 2024, according to the World Gold Council, with exchange-traded funds dedicated to the precious metal ending the year with two consecutive quarters of inflows. Demand for the physical metal was particularly strong in India and China, which helped offset declines in the U.S. and Europe.

Gold miners haven’t done poorly, but compared with the metal itself, they’ve underperformed. Over the past three years, the VanEck Gold Miners ETF (ticker: GDX), which owns large global producers like Newmont and Barrick Gold, returned just 10% in 2023 and 10.6% in 2024, compared with 12.7% and 26.7% for the SPDR Gold Shares ETF (GLD), which holds physical gold. That has started to change in 2025—Gold Miners has returned 24% to the Gold ETF’s 11%—but there’s still room for the stocks to run.

When the price of gold rises, the stocks should theoretically rise even faster, as earnings expectations rise faster than commodity prices if costs stay relatively unchanged. That means profit margins go up and more money flows to the bottom line. That’s why analysts covering companies in the VanEck ETF have increased their 2025 earnings forecasts by 77% in the past two years, according to FactSet.

The stocks haven’t kept up with earnings, leaving room for a catch-up trade. If the stocks were simply to rise in line with profits, the ETF would trade for around $51, about 23% above a recent $41.47.

“Gold miners remain a significantly underappreciated equity opportunity as price returns have barely kept up with earnings upgrades,” writes Bhawana Chhabra, senior market strategist at Rosenberg Research. “Underpinned by strong fundamentals and comfortable valuations, this group offers a strong risk-reward profile.”

Gold stocks, despite their gains, really do look like bargains. The VanEck ETF trades at just over 12 times 12-month forward earnings, a 44% discount to the S&P 500’s 22 times, a much wider gap than the 10-year average of 20%. Narrowing the price/earnings gap to that average discount would bring the ETF up to just over 16 times, landing it, once again, at $51.

All the mining stocks need now is for investors to feel confident that gold prices will remain near current levels or trade higher. The market is nearing that point as gold closes in on $3,000 an ounce. And now that the stocks have started moving, it’s likely investors will be willing to pay higher multiples to own them.

Gold is great, but it’s now time for gold-mining stocks to shine.

Factors I'm focusing on this week:

1) Tues. Consumer confidence

2) Thur. GDP (second revision)

3) Fri. PCE index, Personal spending, Existing home sales & Consumer sentiment (final)

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DATA: Barron’s print edition page 28 2/17/25 Market Week Jacob Sonenshine

Paragraph: one ChatGPT market recap for the week of 2/10/25-2/14/25 As stated above

Paragraph: two Barron’s print edition 2/17/25 page 28 The Stock Market Survived Inflation Data. Cracks Are Emerging. Jacob Sonenshine

Paragraph: three Mitch on the Markets online 2/15/25 The Investment Principle Reinforced by DeepSeek Mitch Zacks

Paragraph: four Barron’s print edition page 29 Golden Opportunities Jacob Sonnenshine

Paragraph: five Closing remarks Richie Naso opinion