US markets responded favourably to new President Donald Trump’s first week in office, with bond yields holding steady and stock indices improving. Global stock indices were also better, with Japanese stocks leading the way last week (+3.8%) even after the Bank of Japan increased its policy rate by 25bps (BoJ official summary decision here). European stocks seemed to take Mr Trump’s first week in office in stride too, posting decent gains in spite of ongoing economic concerns in the currency bloc and the threat of trade tariffs. Sentiment in Europe was also helped by better-than-expected preliminary PMI data for January, released Friday, both for the common currency bloc and the UK. This confluence of factors has lifted the Euro and Sterling off their lows from mid-January, as Dollar strength has faded.
My take on the reaction of global markets is that Mr Trump’s bark is a lot worse than his bite. World leaders have come to expect a normal litany of entertaining rhetoric coming from him, essentially a combination of good-for-America policies, some rather strange assertions, and a fair number of blatant mistruths. Fortunately, professional investors seem to have learned by now how to filter out all of the noise from Mr Trump and to focus instead on the most important things that he plans to do and that have a chance of getting done, which is an even smaller subset of Mr Trump’s long list of promises to his base.
Mr Trump certainly hit the ground running on a variety of social and economic issues, energising markets and attracting American business leaders like magnets as they look to curry favour with the incoming leader of the free world. I listened to both Mr Trump’s inauguration address (here) and his speech at The World Economic Forum in Davos (here), which were fairly similar as far as themes, grievances and an uncanny ability to restate history which at times is factually inaccurate. President Trump made his positions on a myriad of topics crystal clear during both speeches, presenting a variety of policies that were largely in line with the many promises that he made on the campaign trail. Mr Trump’s commentary is perfect for his base of supporters, who fall for his every word as the gospel truth, but it also does not rattle investors, who are largely by now able to separate the proposed workable economic policies from ones that are simply unworkable (or even conflicting). I was reminded of two such themes this week when Mr Trump spoke at the WEF in Davos, saying he would lower global oil prices (“will speak to OPEC”, “drill baby drill”), and that he will lower interest rates. On matters like this, President Trump wildly overstates his influence, so much so that investors more or less dismiss the comments completely.
It's very simple – as an investor, you have to keep in mind that this is the way that Mr Trump operates – he presents some good ideas, some bad ideas, and some impossibilities. Only the handful of policies that are likely to be implemented – whether good or bad – will influence the future direction of the economy and of markets.
Between all of the musings of Mr Trump last week, a number of S&P 500 companies reported earnings for the 4Q2024. Even though valuations clearly remain stretched, the reality is that US companies are on track to report their best quarter-over-quarter growth in earnings since the end of the pandemic, which is somehow being achieved under the “worst economy ever” in 2024 (ha ha). The company that caught my eye last week was NFLX, which delivered outstanding results and positive guidance. The stock was up nearly 14% WoW as it closes in on $1,000/share. If you want to catch up on S&P 500 earnings to date, check out the very comprehensive “Earnings Insight” report by FactSet.
WHAT’S AHEAD
Economic focus: Most focus this coming week with be on policy meetings for the Federal Reserve (no change, decision Weds) and the ECB (likely 25bps cut, decision Thurs). US PCE data for December – the Fed’s preferred inflation gauge – will be released on Friday. We also get December retail sales data from Japan and Germany, and preliminary CPI data for January for Japan.
Earnings: Big week for 4Q24 earnings from S&P 500, with 102 companies expected to report earnings including Mag 7 companies TSLA, MSFT and META (Weds) and APPL (Thurs), as well as BA, GM, SBUX, ASML, MO, MA, V, UPS, XOM and CVX, among many others. A very good source for tracking earnings is earningswhispers.com.
Upcoming central bank meetings:
FOMC: Jan 28-29 (no change expected)
ECB: Jan 29-30 (25bps reduction expected)
Bank of England: Feb 6
Bank of Japan: Mar 18-19
MARKET TABLES
_________________
**** Follow E-MorningCoffee on Twitter, and please like and comment on my posts right here on my blog. You need to be a subscriber, so please sign up. Thanks for your support. ****
Commentaires