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WEEK AHEAD
January 27-31, 2025
The S&P 500 trend following technicals continues to strengthen on broader stock participation while economic fundamentals continue to provide a counterbalance. Our tactical models remain fully invested for the time being.
This week on Wall Street, there was a whirlwind of politics, policy pivots, and mixed economic signals, all playing out against a backdrop of market optimism in economically sensitive sectors as the S&P 500 gained +1.76% during the week.
Political Shifts Drive Headlines
President-elect Donald Trump officially took office on Martin Luther King Day, kicking off his administration with a whirlwind of executive actions. On day one, Trump signed 46 presidential actions, many aimed at reversing the policies of his predecessor. Notable orders included pardons for January 6 Capitol rioters, a delay on the TikTok ban, and the U.S. withdrawal from the World Health Organization. Other moves, such as pausing foreign aid and declaring a national emergency at the southern border, signal a dramatic shift in federal priorities. A controversial order to dismantle all government DEI (diversity, equity, and inclusion) programs has already sparked debate over its long-term impact on the workforce and broader economic implications.
On the business front, a major bright spot emerged with the announcement of Stargate, a $500 billion venture from OpenAI, SoftBank, and Oracle. The project, which promises to create thousands of AI jobs, underscores the enduring strength of innovation in driving U.S. growth.
Economic Data Sends Mixed Signals
The economic picture remains complicated. The U.S. Leading Index slipped by -0.1%, a reversal from the prior month’s +0.4% increase, signaling a potential cooling of momentum. Initial jobless claims also rose unexpectedly to 223,000, slightly above expectations and last week’s 217,000. Despite these headwinds, the housing market showed resilience, with existing home sales climbing for the third consecutive month to 4.24 million annualized units. Meanwhile, manufacturing PMI ticked above 50, indicating renewed optimism in the industrial sector. The yield curve remained steady in the bond market with its gradual steepening posture, an indicative harbinger of economic normalization as growth expectations solidify.
Sector Performance: Cyclicals Take the Lead
Market strength was most pronounced YTD in cyclically driven sectors, with Financials (+5.6%), Industrials (+6.8%), Communication Services (+6.3%), Basic Materials (+5.7%), and Energy (+6.2%) leading the charge. These gains reflect investor confidence in pro-growth initiatives and resilience in economically sensitive industries.
Corporate earnings also delivered sparks of optimism this week. Standouts included Netflix (+13.9%), buoyed by robust subscriber growth; Schwab (+7.1%), benefiting from rising interest rates; and GE Aerospace (+7.6%), capitalizing on strong demand in aviation. Other leaders, such as 3M (+5.9%) and Capital One (+6.6%), added to the week’s rally, demonstrating solid performance despite broader macroeconomic uncertainties.
Momentum Amid Uncertainty
As the markets digest the implications of sweeping political changes and mixed economic data, the question remains: How will these developments shape the U.S. economy in 2025? Investors appear cautiously optimistic, betting on resilient sectors and corporate strength to sustain momentum. Still, uncertainty looms large, particularly as fiscal and trade policies take shape under the new administration.
For now, Wall Street remains focused on opportunities in sectors best positioned to capitalize on pro-growth tailwinds. The road ahead may be bumpy, but for the moment, the markets are leaning into the promise of resilience and renewal.
With the Academy Awards set to take place on March 2, “There is one sin I come to fear above all others, certainty. Certainty is the great enemy of unity. Certainty is the deadly enemy of tolerance…If there was only certainty, and no doubt, there would be no mystery, and therefore no need for faith.”
—Ralph Fiennes Cardinal Lawrence’s Sermon in the movie Conclave, 2024
TWLO Proves Value is Back from the Dead
COVID drove the TWLO stock price from the 50s to the 400s due to the unique and dizzying meteoric growth and use of TWLO technology during the pandemic— a use that could only be reimagined during COVID. What happened next to TWLO, though not alone with the likes of Zoom and Peloton, was the amazing fall in stock price that could only be seen as a cataclysmic bursting of what bubble legends are made of and are investors’ worst nightmare.
Peak to trough, a drop of 410 points from a peak of 457 amounting to almost a complete 90% correction - a 90% loss is just marginally better than a complete loss.
But for us value investors, comes opportunities that aren’t nightmares but dreams. Beautiful dreams…. Ok, there are some dreams where it’s more like the death of a thousand cuts. However, we can say today that TWLO has risen from the ashes and proved there is a place for value investors. Since the last vestiges of COVID-19, TWLO stock has been as flatline as one can imagine. Still, today, they announced topline YOY revenue growth of 10%, almost doubling the growth forecast. $182 million of non-GAAP operating income at over 16% margins, leaving the firm with almost $2.7 billion in cash—more than enough to cover the outstanding debt. Last Friday, the stock jumped 20% during a quite blah day for tech names, and since late last year, the stock has been up well over 100% from the low 50s.
For things we take for granted, emails, texts, and messaging, the surface has only been scratched, or in TWLO’s case, post-COVID “re-scratched, it’s the utilization of AI technology that converts these everyday experiences into smart sales driving interactions. Chock one up for the value guys, and yes, TWLO is in the Russell 1000 Value index!
All charts provided by Yahoo.
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