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Volatility is back:
Major Index Performances (as of Friday Morning):
- S&P 500: The benchmark index rose 2.86%
- Dow Jones Industrial Average: The Dow Increased 3.74%
- Nasdaq Composite: The index is up 2.3%
- Gold: The Precious metal is up 1.25%
News driven market movement: On Friday January 10th the stock market fell 1.5% following a strong labor report. That report strengthens the argument for slowing the pace for lowering rates in 2025. This week, lower than expected inflation reports, and positive bank earnings helped spark a two-day rally. Friday’s housing reports showed an increase in housing starts and building permits, helping to continue the rally. Most of the increase can be traced to a resurgence in multifamily housing starts, concentrated among larger projects. Single family housing starts increase far more modestly. To us, this is a sign that builders continue to believe that renting will be easier, and perhaps more desirable, to maintain than buying a new home.
Market Breadth: The S&P 500 is down 3% since it hit a record high on December 6th, which is nothing unusual. But underneath the surface, a lot of damage has been done to the internals of the S&P 500, making that decline more painful for investors. Since December 6th, only 19% of stocks withing the S&P 500 posted a positive return. More than half of the index is down at least 5%, and approximately 20% of the index posted losses greater than 10%.
One popular technical breadth measure, the percentage of S&P 500 stocks above their 200-day moving averages, plunged from about 75% on December 6 to as low as 50% on Monday, hitting its lowest level since November 2023. We see the 25% plunge in the popular market breadth measure coinciding with just a 4% drop in the S&P 500 index, as a warning sign, at least in the short term. Based on historical data, if the number of stocks trading above the 200-day average drops below 50%, you can expect a -7.3% return for the next 12 months. You can see more on this topic next week on Omnistar’s, “We’re Talking Money” podcast.
Inauguration Monday: On Monday January 20th, America will swear in Donald J. Trump, again, as he assumes the role of Commander in Chief. It looks as though he will move forward with Tariffs, but perhaps in stages. Tariffs made a comeback during the 2017-2021 presidency of Donald Trump, who turned to them to revitalize American manufacturing and counter what the US regards as China’s unfair trade practices. Trump’s successor Joe Biden kept that trend going, despite his harsh criticisms. Trump’s desire to increase Tariff’s reignited a debate over whether the levies are a valuable tool for competing with economic rivals, or a policy weapon with a checkered past that’s likely to backfire. The immediate reaction to Tariffs could result in higher prices, reigniting inflation. However, if implemented strategically, the impact could be contained.
Lastly, earnings season has started and banks reported mostly solid results. Earning expectations are high this year. The slightest miss could be the catalyst to ignite more corrective selling.
Have a wonderful weekend, and if you happen to be in the NC area, brace yourself for next week’s winter blast. Stay warm and be safe.
Your OmniStar investment team
