January 16th Market Overview

Happy Thursday. We are half way through the first month of 2025.

Indices basically flat into close today other then the Q’s taking a hit from $AAPL headlines claiming they are losing market share in China.

Mixed action as big tech took a breather while defensive sectors picked up the slack. $TSM earnings ease AI chip supply chain concerns with strong capacity expansion plans.

Let's dig in...

Executive Summary

• Bearish sentiment readings reach high levels with AAII survey showing 40.6% bears versus 25.4% bulls
  

• $TSM earnings reveal AI revenue set to double in 2025, with 40% CAGR projected through 2029
  

• Financial sector earnings kickoff exceeds expectations with 77% of reporting companies beating estimates
  

• Market breadth hits 6:1 advance/decline ratio with 82% up volume, strongest technical reading since August 2024

Market Overview

Key Market Drivers

1. Diverging Market Signals: Philadelphia manufacturing data shows new orders index surging 47 points alongside the strongest shipments expansion since 2020, yet retail sales grew only 0.4% versus 0.5% expected. This divergence between industrial strength and consumer caution creates opportunities in industrial names while warranting selective approach to retail exposure.
   

2. Capital Reallocation: Wells Fargo Investment Institute strategist Scott Wren emphasizes opportunity for long-term investors with 3-5 year horizons, specifically advocating use of pullbacks to deploy sidelined cash into large-cap domestic equities. Their S&P 500 target range of 6,500-6,700 suggests significant upside from current levels.
   

3. Supply Chain in Chips: $TSM management directly addressed market concerns stating "Any rumors about CoWoS order cuts are simply not true." The company backs this by increasing capacity investment, with 2025 CapEx guidance of $38-42B exceeding consensus $35.15B, suggesting confidence in sustainable demand.
   

4. Options Influence: Market heading into January OPEX with significant open interest clustering around current index levels. With Waller's rate cut comments shifting rate expectations and AAII sentiment showing extreme bearish readings, options-driven volatility could amplify market moves.

Stock Spotlight

• $TSM: Shatters expectations with AI revenue projected to double in 2025. Reports showed AI composed mid-teens percentage of 2024 revenue, with 40% CAGR expected through 2029
  

• $MS: Investment banking surge drives results, with revenues reaching $16.22B against $15.03B expected
  

• $TGT: Holiday digital sales ▲ 9% boost outlook, but margin questions persist as guidance maintains previous EPS range
  

• $UNH: Premium revenue miss of $76.48B versus $78.18B expected overshadows earnings beat

Big Name Updates

• $AAPL: Credit card partnership shift looms as discussions advance with Barclays and Synchrony, marking potential end to Goldman collaboration
  

• $NVDA: DA Davidson maintains contrarian neutral stance with $135 price target despite broader sector optimism
  

• $GOOGL: Internal Gemini user targets suggest confidence in competing with ChatGPT’s 300M weekly users
  

• $META: TikTok ban developments create unexpected competitive dynamics ahead of earnings

Other Notable Company News

• $DDOG: Morgan Stanley sees compelling evolution from “system of alerting” to “system of action” but cites valuation concerns
  

• $TEAM: Receives top pick status at Morgan Stanley, with price target raised to $315 from $259. Analyst expects sustained 20% top-line growth and margin expansion to drive 25%+ FCF growth profile over next three years
  

• $ENPH: Trust downgrades to Hold from Buy, cuts PT to $65 from $100. Cites combination of weak European market demand for solar products and intensifying U.S. competition from $TSLA's energy business as headwinds to 2025 growth estimates
  

• $SQ: Jefferies maintains confidence in Cash App user metrics despite compliance changes

Sector Watch

Bond Market

Treasury yields down meaningfully from 14-month highs, with the 10-year settling at 4.623%. Fed Governor Waller’s shift toward potential rate cuts sparked renewed fixed income interest.

His outlook suggests three to four reductions possible in 2025, marking a notable departure from recent Fed commentary.

Policy Watch

• Fed messaging evolves as Waller opens door to earlier and more frequent rate adjustments. The Fed Governor noted potential for "maybe four cuts, three cuts" in 2025 if inflation continues its downward path, marking a significant shift from recent hawkish Fed commentary.
  

• China launches anti-dumping probe into mature US chip imports. This move raises new concerns just as semiconductor tensions appeared to ease, with potential impact on companies operating in legacy node production.
  

• PBOC stimulus expectations build ahead of Lunar New Year on January 28. Reports suggest China's central bank may cut the reserve requirement ratio (RRR) to boost liquidity ahead of the holiday season, signaling continued commitment to economic support.
  

• TikTok regulatory landscape shifts as Biden administration works to prevent Sunday ban deadline. President reportedly considering executive orders to avoid disruption, while TikTok's CEO receives Trump inauguration invitation - adding complexity to the platform's regulatory future.

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What to Watch

1. Philadelphia Fed Follow-through: Historic manufacturing requires validation

• Manufacturing index jumped from -10.9 to 44.3, highest level since April 2021

• Supplier delivery index will indicate if December's supply chain improvements continue

• New orders component spiked 47 points - watch if this translates to sustained demand across other regional Fed surveys

2. Semiconductor Sector Dynamics: $TSM earnings ripple effects

• Advanced packaging capacity set to grow from 8% to >10% of revenue in 2025

• CoWoS capacity expansion critical for $NVDA and other AI chip makers

• Management's 40% AI accelerator CAGR forecast through 2029 could drive sector sentiment

3. Financial Sector Momentum: Regional bank earnings narrative

• $MS investment banking revenue up 29% sets high bar for peer reports

• Focus on deposit costs after $BAC's mixed reception despite earnings beat

• Commercial real estate exposure remains key metric after recent market stress

4. Options Expiration Influence: Major OPEX dynamics

• Significant open interest concentration at current market levels could create volatility

• AAII bearish sentiment at 40.6% suggests potential for short covering

• Key strike prices between current levels and Wednesday's highs may act as resistance/support

Thanks for reading

- John