January 31st Market Overview

Happy Weekend.

Markets shifted into reverse today as White House confirmed 25% tariffs on Canada/Mexico and 10% on China starting Saturday. The announcement erased early gains, sending major indices lower from session highs. I’d hope these tariffs get resolved by end of next week but I’d imagine fear builds over the weekend if nothing resolves.


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Let's dig in...

Executive Summary

• White House confirmed aggressive tariffs starting Saturday. They are 25% on Canada and Mexico, and 10% on China. Market response was swift with the Dow dropping over 300 points from session highs.
  

• Personal spending rose 0.7% in December, above the 0.5% estimate. This shows continued consumer resilience. This marks significant strength heading into 2025 despite inflation concerns
  

• PCE inflation data shows persistent price pressures. The core rate is 2.8% annually. The headline rate rose to 2.6% from November's 2.4%. This acceleration could impact Fed rate cut timing
  

• The tech sector has recovered from Monday's 3.07% drop due to DeepSeek. $META leads the comeback, up 8% for the week. The Nasdaq has now recovered most losses. It is near flat for the week after initial AI concerns.
  

Market Overview

Key Market Drivers

1. Trade Value Impact: Combined annual trade of $1.6 trillion with Canada, Mexico, and China faces disruption. Markets particularly focused on key sectors like steel, aluminum, and automotive supply chains
   

2. Labor Market Dynamics: Wage growth remains inconsistent with Fed's 2% target despite robust spending. Chicago Fed's Goolsbee emphasizes monitoring supply-side impacts on prices
   

3. Global Inflation Trends: Germany's CPI decline of -0.2% MoM against +0.1% estimate points to potential broader European disinflation. Early signal for U.S. February readings
   

4. AI Sector Stabilization: Communication Services ETF ($XLC) hits all-time high, marking 10th straight positive session. First such streak since January 2023, led by $META's weekly performance
   

Stock Spotlight

• $AAPL: Services revenue drives earnings beat, but iPhone China sales drop ▼11%. Channel inventory changes cited for decline. CEO Cook: iPhone 16 outpacing iPhone 15 sales cycle. Citi opens 90-day catalyst watch, raises PT to $275
  

• $WBA: Shares hit 90% below 2015 peak on dividend suspension. First cut in 92 years marks strategic shift toward $6.5B debt reduction
  

• $TEAM: Surges ▲16% on Q2 earnings of $0.96 vs $0.76 estimate. Revenue reaches $1.29B vs $1.24B expected. Canaccord: AI integration driving growth
  

• $V: Payment volumes fuel guidance raise. Projects "low teens" EPS growth, up from "high-end low double digits"

Big Tech & Energy

• $NVDA: White House meeting focuses on China chip restrictions amid new tariff landscape. Stock recovers to ▼15% from Monday's ▼17% DeepSeek drop
  

• $INTC: Client Computing Group beats on pre-tariff builds. Q1 guidance signals weakness ahead. Bernstein maintains $25 PT
  

• $XOM: Production growth offsets margin pressure. Q4 earnings: $2.48/share vs $2.23 estimate. Refining margins at multi-year lows
  

• $MSFT: NJ AI Hub partnership signals $72M+ investment in research commercialization. Performance reviews trigger selective cuts

Notable Developments

• $OXY: Goldman downgrades to Sell, cuts PT to $45 from $54 citing balance sheet constraints
  

• $UEBR: Atlanta Waymo partnership marks exclusive ride platform selection
  

• $ASTS: FCC grants testing authority for space-based mobile broadband with $T, $VZ
  

• $CAT: Bernstein reduces PT to $360, expects slow H1 before potential H2 acceleration
  

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Sector Watch

Bond Market

Treasury market assesses dual impact of inflation data and trade policy shifts. Chicago Fed's Goolsbee notes progress toward 2% target while highlighting how transitory versus lasting tariff effects could influence rate decisions. Market-implied probability of March rate cut dropped to 48% from 65% last week following PCE data and tariff news.

Policy Watch

Fed Governor Bowman emphasized three key monitoring points:

• Current policy stance provides adequate room to assess Trump administration's trade measures

• Labor market remains tight with wage growth above 2% inflation target levels

• Q1 2025 data critical for determining pace of policy adjustments

White House frames tariffs around fentanyl trafficking rather than trade imbalances, marking shift from previous administration's approach. Aides explore targeted sector exemptions, particularly in oil and automotive industries, suggesting potential flexibility in implementation.

What to Watch

1. Tariff Implementation Details:

• Potential exemptions for oil sector and automotive supply chains based on White House discussions

• Canada and Mexico expected to respond at Saturday's North American trade summit

• Focus on steel and aluminum sectors as primary targets versus broader implementation

2. Major Tech Reports (Feb 4-8):

• $GOOGL: Search market share post DeepSeek concerns, Cloud segment growth vs $MSFT

• $AMZN: Holiday quarter performance, AWS margins amid pricing pressure

• $NVDA: Export control impact on China revenue, AI chip demand outlook

3. January Labor Data (Feb 2):

• Consensus expects 180,000 new jobs vs December's 216,000

• Average hourly earnings forecast at 4.1% YoY vs 4.3% prior

• Unemployment rate projected to tick up to 3.8% from 3.7%

4. PCE Impact on Fed Timeline:

• Core PCE at 2.8% vs 2% target influences March cut probability

• Personal spending strength at 0.7% suggests consumer resilience

• Regional Fed presidents' commentary on rate path following data