Market Performance Overview

The Dow Jones Industrial Average saw a modest increase of 0.3% this week, while the S&P 500 fell by 1.0%, the Nasdaq Composite decreased by 1.6%, and the Russell 2000 experienced a 0.9% loss. The week began with a sharp decline due to attention on China's AI platform DeepSeek, which is noted for its efficiency compared to alternatives like ChatGPT. This raised concerns about the competitiveness of companies in the AI sector and potential changes in capital spending plans.

NVIDIA (NVDA, Financial) suffered a significant 17% drop on Monday, marking its largest single-day loss in market capitalization, and ended the week 15.8% lower than the previous Friday.

Earnings and Economic Highlights

This busy week included earnings reports from about 40% of the S&P 500 by market capitalization, a decision from the FOMC, and key economic releases. Notable companies reporting results included Apple (AAPL, Financial), up 5.9%, Microsoft (MSFT, Financial), down 6.5%, Meta Platforms (META, Financial), up 6.4%, and Tesla (TSLA, Financial), down 0.5%. Other significant earnings came from IBM (IBM +13.8%), Starbucks (SBUX +9.0%), Boeing (BA +0.3%), General Motors (GM -8.3%), and Lockheed Martin (LMT -6.8%).

On Wednesday, the Federal Open Market Committee (FOMC) kept the target range for the fed funds rate unchanged at 4.25-4.50%, a decision anticipated by the market. The directive noted that "Inflation remains somewhat elevated," with no mention of progress toward the 2% objective as stated in December. Fed Chair Powell emphasized a cautious approach, suggesting no immediate need to adjust policy given the current economic strength.

Economic data showed a low level of initial jobless claims at 207,000 for the week ending January 25 and a strong 4.2% growth rate in personal spending for Q4. The core-PCE Price Index remained steady at 2.8% year-over-year for the third consecutive month.

Tariffs and Market Reaction

Stocks declined late Friday after the White House confirmed the imposition of tariffs: 25% for Canada and Mexico, and 10% for China, starting February 1. These tariffs are linked to immigration, trade deficit, and fentanyl issues. Although there were earlier reports, the confirmation added uncertainty, leading to selling pressure. Despite hints of possible negotiations to mitigate the tariffs, the market remained largely unaffected.

Treasuries experienced volatility, but ultimately ended with gains. The 10-year yield decreased by six basis points to 4.57%, and the 2-year yield fell by three basis points to 4.24%.

Daily Market Recap

Monday

The market was mixed, with significant declines in big tech, semiconductor, and AI-exposed utility stocks. NVIDIA (NVDA, Financial) faced a substantial loss due to concerns over China's DeepSeek AI model. Despite this, more S&P 500 sectors closed higher than lower, and the Dow Jones Industrial Average increased by 0.7%.

Tuesday

Markets recovered, with the S&P 500 rising by 0.9% and the Nasdaq Composite by 2.0%. Mega caps and chipmakers, particularly NVIDIA (NVDA, Financial), led the recovery, although the broader market did not follow suit.

Wednesday

The market showed little conviction ahead of the FOMC decision. Post-announcement, there was volatility, but markets settled unchanged, indicating no surprises in the Fed's decision or comments.

Thursday

Markets closed positively following an afternoon recovery after President Trump's tariff announcement. The S&P 500 gained 0.5%, and the Russell 2000 outperformed with a 1.1% increase. Positive earnings from IBM (IBM, Financial), Meta Platforms (META, Financial), and Tesla (TSLA, Financial) overshadowed Microsoft's (MSFT, Financial) decline.

Friday

Markets initially performed well but turned lower after the White House confirmed tariffs. Despite positive inflation data, stocks closed near session lows. Treasury yields rose in response to the tariff news.

Guru Stock Picks

Baillie Gifford has made the following transactions:

• Reduce in PAYC by 1.16%
• Sold out in VIR
• Add in NYT by 228.3%
• New position in EIX

Today's News

The Trump administration announced that tariffs on Canada, Mexico, and China will go into effect on February 1st, impacting various sectors. Chevron (CVX, Financial) experienced a significant drop, falling 4.6% after reporting its first quarterly loss in its refining business since 2020, partly due to these tariffs. The energy sector overall saw a decline, with Chevron seeking to maintain its operations in Venezuela amidst geopolitical tensions.

Apple (AAPL, Financial) has decided to cease efforts on its advanced augmented reality glasses project, code-named N107, which was initially intended to pair with its devices. The decision came after attempts to redesign the product and connect it to a Mac failed to meet expectations during executive reviews. This move reflects strategic shifts as Apple focuses on other technology initiatives.

Bitcoin (BTC-USD, Financial) faced volatility, initially dropping below $100K due to concerns over tariffs and competition from Chinese AI startup DeepSeek, which affected U.S. tech stocks. However, Bitcoin quickly rebounded, maintaining its value above the $100K mark, as investors saw the dip as a buying opportunity.

Nvidia (NVDA, Financial) and other chip stocks were affected by the emergence of DeepSeek's AI model, which has been developed more cost-effectively than U.S. counterparts. This has raised questions about the sustainability of current AI infrastructure investments and led to market uncertainty in the semiconductor sector.

Palantir Technologies (PLTR, Financial) is set to report its Q4 earnings, with analysts expressing mixed views on its growth prospects. While some see potential in its AI platform, others caution about the challenges of maintaining accelerating growth. The company's strategic direction will be closely watched by investors.

Walgreens Boots (WBA, Financial) saw a decline after suspending its quarterly dividend for the first time in 92 years. Reports suggest private equity firm Sycamore Partners is exploring a potential takeover, possibly involving the sale of health units like VillageMD to manage debt and legal challenges.

Petrobras (PBR, Financial) announced an increase in diesel prices, aligning with international market rates. This marks the first price hike in over a year and reflects the Brazilian government's approval to adjust prices amid changing market conditions.

Occidental Petroleum (OXY, Financial) faced a downgrade from Goldman Sachs, citing a focus on deleveraging over capital returns. This strategic priority has led to investor caution, with expectations that capital returns will resume once balance sheet improvements are achieved.

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