Hope you are all doing well. U.S. stocks started the week on a positive note, sending the S&P 500 to a record high on Wednesday, crossing 7,000 for the first time. Unfortunately, the market turned negative on Friday and finished mixed overall for the week. The S&P 500 climbed slightly while the NASDAQ and the Dow both finished fractionally lower for the third week in a row. For the month the U.S. stock market maintained a modestly positive momentum in January, with each of the three major indexes posting monthly gains of around 1% to 2%. For the S&P 500, it was the eighth positive monthly result out of the past nine. The Dow had its ninth positive month in a row. Catherine O’Hara passed away on Friday. I have broken down this week’s update using quotes from her character, Moira Rose, on Schitt’s Creek.
“Worry is but undernourished enthusiasm.” – Catherine O’Hara
The worry over the uncertainty at the U.S Federal Reserve took a step towards clarity. Fed Governor Kevin Warsh has been nominated to replace Jerome Powell. Markets generally view Kevin Warsh as competent and credible. He is an experienced choice for Federal Reserve Chair. The assumption is that he is likely to reduce policy uncertainty. The nomination came two days after the Fed fulfilled market expectations by keeping its benchmark rate unchanged. Warsh has a reputation as a very bright and independent thinker. The assumption is that he will help retain independence at the Federal Reserve. I guess my enthusiasm is undernourished because I am not convinced. I do think Warsh is the best choice of the people the President was considering. I don’t know how independent he will remain. The market assumes he likely represents a dovish shift on interest rates relative to Chair Powell. However, Warsh has been quite hawkish. He has recently been more dovish, perhaps to curry favor with the President. Even if he does want to reduce rates, he will still need to have the confidence of and the ability to persuade the other voting members of the Fed. He has also made comments that lead me to believe perhaps he may not put the same value on Fed independence that Chairman Powell does. Several Fed officials have recently emphasized the importance of central-bank independence. This is telling to me because it might mean that the group he will be chairing doesn’t necessarily believe he shares their values. It is my expectation that there will continue to be diversity of views and data-dependent decisions at the Fed. However, I will not be shocked if Warsh says something in a statement or interview that causes Fed independence to be called into question. If that happens, I believe markets will react negatively.
“If airplane safety videos have taught me anything, David, it’s that a mother puts her own mask on first.” – Catherine O’Hara
Gold and silver have hit turbulence. Both rallied to record highs on Thursday. However Friday, they hit a patch of rough air tumbling to finish negative for the week. The move came after the nomination of the new Fed chair. The drop was caused by a move in the dollar, which strengthened on the Warsh news. It is perceived that Warsh is likely to pursue policies that favor a more stable, stronger currency and that hurt the metals trade. Gold futures traded at less than $4,900 per ounce just a day after climbing as high as $5,586. Silver really got hit, sinking to around $82 per ounce on Friday after peaking at $121 the day before. We may have reached a short-term top in gold and silver. However, it’s hard to call a top, especially in a world where the news headlines are coming as fast and furious as they have been.
“Take a thousand naked pictures of yourself now… one day you will look at those photos with much kinder eyes and say, ‘Dear God, I was a beautiful thing!'” – Catherine O’Hara
With all the other news headlines the unbelievably great earnings reports we have been getting have gone under appreciated. Earnings expectations continue to rise as we approach the mid-point of quarterly reporting. As of Friday, analysts projected that earnings for S&P 500 companies rose 11.9% in the fourth quarter. That is up from an 8.2% forecast the previous week. Meta was the biggest story this week. The Facebook parent saw revenues rise 23.8% year-over-year to $59.89 billion. Revenues were driven by what they termed a “major AI acceleration”. They also significantly improved advertising performance and user engagement. The previous quarter investors questioned the company’s massive investments in infrastructure. Meta’s results proved to investors that its AI initiatives are directly translating into higher revenue and engagement across its apps.
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