Analyzing Recent Market Trends Amid Tariff Speculation
In recent weeks, President Donald Trump’s tariff plans have certainly taken center stage, inciting market fluctuations and investor anxiety. However, let’s take a moment to peel back the layers of media noise and examine the underlying strength of the stock market. Signs of resilience have emerged, providing equity strategists with solid reasons to remain hopeful about the trajectory of stocks.
Since the AI-driven sell-off triggered last Monday, the S&P 500 (^GSPC) has surprisingly rebounded, showing a modest increase of approximately 0.3%. Although there were moments of sharp declines, particularly during pre-market trading, the benchmark index managed to maintain its footing with fluctuations of less than 1% during turbulent trading sessions well into the week.
Nicholas Colas, co-founder of DataTrek, emphasized that over the past decade, the average daily movement of the S&P 500 has hovered around 1.1% in either direction. This suggests that the recent market downticks are well within the realm of normalcy.
Moreover, let’s not overlook the CBOE Volatility Index, better known as the VIX (^VIX). While it has seen some ups and downs in recent days, it has not surpassed the critical level of 19.5, a threshold Colas is closely monitoring as a potential indicator of increasing market volatility.
Colas poignantly noted that investors appear to be looking past the ongoing trade war headlines. Given President Trump’s historical use of tariffs as a policy instrument and his campaign focus on trade issues for 2024, his actions are not entirely unexpected. He stated, "As long as the market action, or the potential downside economic impact of tariffs, does not shift materially, we will remain bullish on U.S. stocks."
Despite discussions surrounding tariffs and inflation dominating the current narrative, strong earnings trends are a substantial counterbalance contributing to the optimism among Wall Street strategists. As of last week, the S&P 500 was on track for a remarkable year-over-year earnings growth of 13.2% for the fourth quarter—a figure that outpaces the previous consensus expectation of 11.8% from December 31, according to FactSet data.
Analysts are also expressing confidence about the continuity of future earnings growth. Deutsche Bank’s chief global strategist, Binky Chadha, highlighted in his briefing that while we might typically expect a 1.3% reduction in earnings estimates at this stage in the quarter, projections have only been slightly revised downwards by 0.6%. This indicates a level of resiliency in earnings forecasts.
Barclays’ head of U.S. equity strategy, Venu Krishna, added his perspective by emphasizing that he expects earnings acceleration throughout the year despite the market turbulence.
Delving into economic indicators, recent data also presents a robust picture. For instance, the Job Openings and Labor Turnover Survey (JOLTS) released on Tuesday revealed a decrease in job openings to the lowest level since September. However, the details were more encouraging; the ratio of job openings to unemployed workers has remained stable at about one-to-one for the past six months. This stabilization suggests that while there has been a cooling in the labor market since 2022, conditions are not deteriorating to alarming levels. Paul Ryan from Capital Economics noted, "The totality of the December JOLTS data is consistent with a labor market that has stabilized at a healthy level."
Adding to the encouragement, the Institute for Supply Management’s manufacturing PMI reported expansion in the manufacturing sector for January—the first increase in over two years. Fundstrat’s head of research, Tom Lee, referenced this uptick, asserting that typically, improved manufacturing activity aligns with a rise in earnings per share for the S&P 500. "The data continues to support our constructive view on markets," asserted Lee.
As we navigate these evolving financial landscapes, it’s critical for investors to remain informed and adaptable to changing market dynamics. For an in-depth analysis of current stock market news and its impacts on your portfolio, keep exploring resources here at the Extreme Investor Network. Stay ahead of the curve and make financial decisions rooted in comprehensive research and strategic insight.