The Week That Was, The Week Ahead: Macro & Markets, January 19, 2025

Everything to Know about Macro and Markets

Stocks surged, clocking in their best week since the November presidential election and moving into the green year-to-date. The S&P 500 (SPX) was up by 2.91% for the week, while the Dow Jones Industrial Average (DJIA) jumped by 3.69%. Meanwhile, the tech benchmarks Nasdaq Composite (NDAQ) and Nasdaq-100 (NDX) rose by 2.45% and 2.85%, respectively.

Lower Inflation, Higher AI Spending Ahead

Last week was only the second one in the black out of the past month and a half for the S&P 500, but the strength of the surge propelled the benchmark index to less than 2% below its record high set on December 6^th. The rally broadened to include all S&P 500 sectors as Treasury yields reversed their previous climb, removing some pressure from both the more leveraged sectors and those with higher valuations.   

Better-than-expected Core CPI data eased fears of a reacceleration in inflation, firming rate-cut expectations, and encouraging investors, who rushed in to buy the dip. At the same time, reports that any potential tariff implementation would likely be gradual, in addition to reports that President-elect Trump spoke with Chinese President Xi, relieved worries over a potential spike in inflation due to tariffs. The strong start to the earnings season further lifted investor sentiment.

According to Bank of America, Trump’s return to the White House will protect stock markets from downside thanks to his deregulation policies and lower corporate taxes. Other Wall Street brokerages echoed this sentiment, adding that earnings growth should support stocks, as the economy continues to be robust and the AI narrative remains intact. JPMorgan forecasted that data center investments alone will contribute between 10 to 20 basis points to U.S. economic growth in 2025-2026, driven by the AI boom.

Banking on “Animal Spirits”

All eyes were on the large banks last week as they kicked off the Q4 2024 earnings season with a bang. According to FactSet, S&P 500 earnings are projected to have grown 12.5% year-over-year in the fourth quarter, marking the fastest expansion since Q4 2021. The Financials sector is expected to lead this growth with an estimated 47.5% surge, followed by the Communication Services and Technology sectors with increases of 20.7% and 13.9%, respectively.

The nation’s largest financial institutions met these expectations with strong performances. JPMorgan Chase (JPM), Citigroup (C), Bank of America (BAC), Goldman Sachs (GS), Morgan Stanley (MS), and Wells Fargo (WFC) reported a combined profit of $36 billion in Q4 2024, driven by their diversified business models. Consumer lines rebounded as U.S. spending strengthened during the holiday season, while commercial lines maintained their momentum. Trading revenues rose by 10%, supported by a positive market environment, and investment banking fees climbed 34%, fueled by a rebound in dealmaking and increased equity and debt issuance.

For 2024 as a whole, the six largest banks raked in a combined net profit of $142 billion, up 20% from 2023, marking their second-best year since 2007. Looking ahead, the 2025 profit outlook appears even more promising, with slower Federal Reserve easing expected to sustain net investment income growth. Additionally, regulatory changes and robust M&A activity could further bolster earnings. These tailwinds position Financials stocks for continued outperformance in 2025, building on their strong 2024 performance, where they ranked second only to Communication Services and significantly outpaced Technology, the leader in 2023.

Stocks That Made the News

▣ Wall Street’s optimism was largely underwritten by large banks last week, as JPMorgan (JPM) reported its most profitable year ever, Citigroup’s bottom line (C) surged past analyst estimates, profits at Bank of America (BAC) and Morgan Stanley (MS) more than doubled year-over-year, Goldman Sachs (GS) reported earnings at three-year high, and Wells Fargo’s profits jumped by over 47%. The Financials sector surged over 6% last week.

▣ Technology megacaps also pushed forward, with all but one of the “Magnificent” stocks up strongly for the week. The sole Big Tech loser last week was Apple (AAPL), plunging on reports of weak iPhone sales in China.

▣ Taiwan Semiconductor Manufacturing (TSM) kicked off the earnings season for technology megacaps on a strong note, outperforming analyst expectations and posting better-than-expected guidance for the current quarter. The world’s largest foundry’s revenues and profits continue to soar amid surging demand for advanced chips used in AI applications. TSM said it foresees 2025 AI hardware capex almost 20% above consensus, fueling investor optimism towards chip equipment stocks  

▣ Healthcare was the S&P 500’s worst performer over the past week and the only one in the red on Friday, as Moderna’s (MRNA) tumbled on guidance disappointment. Meanwhile, Eli Lilly (LLY) was hit by the news about Medicare program’s plans to include weight loss medications made by Novo Nordisk (NVO) in its second round of price negotiations, raising concerns that similar products from LLY could also come under scrutiny.    

▣ Intel (INTC) saw its stock surge, notching the S&P 500’s best performance on Friday, following rumors of a potential takeover, with Tesla’s (TSLA) Elon Musk named as a possible buyer. However, analysts dismissed these speculations, saying that Intel’s future remains uncertain unless the company makes significant strategic changes.  

Upcoming Earnings and Dividend Announcements

The Q4 2024 earnings season has begun, with many notable earnings releases scheduled for this week. The key reports are coming from Netflix (NFLX), Charles Schwab (SCHW), United Airlines (UAL), Procter & Gamble (PG), Johnson & Johnson (JNJ), Intuitive Surgical (ISRG), GE Aerospace (GE), Kinder Morgan (KMI), Elevance Health (ELV), American Express (AXP), and Verizon (VZ).

Ex-dividend dates are coming this week for Caterpillar (CAT), Lowe’s (LOW), Krispy Kreme (DNUT), Dell Technologies (DELL), CVS Health (CVS), Pfizer (PFE), Procter & Gamble $ (PG), Procter & Gamble (PG), and other dividend-paying firms.

For additional exclusive market insights and content from TipRanks Macro & Markets research analyst Yulia Vaiman, click here.