Wall Street started the short trading week on a bullish sentiment, with lower bond yields making stocks more attractive than stocks.
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U.S. stocks fell on Friday but ended the week higher ahead of next week’s big tech earnings and Federal Reserve meeting. Once again, tech stocks and Dow stocks led the way, leading to broad gains. But analysts are skeptical that the bull market may have been doomed too soon, as market sentiment can change in an instant.
The S&P 500 ended Jan. 24 at 6,101, up 2.76% for the week and just shy of its all-time high. The Dow Jones rose 2.95 percent to close at $44,424. The Nasdaq ended the week at 19,954, up 3.19%. The small-cap Russell 2000 rose 1.81% to end at 2,307.
Wall Street started the short trading week with bullish sentiment from the previous week, driven by lower bond yields that make stocks more attractive than stocks.
By midweek, the rally gained momentum again, thanks to some positive news from the new administration in Washington. First, the new administration appears to be in no hurry to impose tariffs, placating those concerned about the inflationary impact of these policies. This stabilized the bond market for the rest of the week and provided a cushion for stocks.
Second, the Trump administration has signaled a desire to make the United States a dominant player in AI, including with its $500 billion Stargate investment plan. This reignited AI hype and helped lift the tech-heavy Nasdaq index.
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RReports suggesting a good earnings season also supported investors’ positive sentiment toward stocks. On Tuesday afternoon, Netflix reported record revenue and operating profit due to subscriber growth, sending its stock to new highs and adding to the tech hype.
The string of positive earnings news continued the rest of the week, with United Airlines, P&G, GE Aerospace and Twilio all reporting better-than-expected profits, helping extend gains beyond tech stocks.
There was another positive factor supporting the stock market’s winning streak. The drop in oil prices is due to President Donald Trump fulfilling his promise to lower oil prices and announcing several policies that put downward pressure on the oil market.
James Demmert, chief investment officer at New York City-based Main Street Research, welcomed the continued rally in stocks but remained cautious about next week’s Fed meeting.
“After some volatility over the past four weeks, stocks are approaching their previous December highs,” he told The Epoch Times. “While we are encouraged by the strength of the market, we are still far from this correction. I haven’t gotten out of it,” he said.
“We expect the Federal Reserve to meet next week and put further downward pressure on stocks as investors’ expectations of an immediate rate cut fade.”
However, he is concerned about the technical aspects of the market. “Stock market breadth remains narrow, a classic indicator of impending correction or consolidation,” he added.
“Once we get past the big tech-related gains, we expect the market breadth to continue to widen, as it has for most of 2024, before taking a brief hiatus towards the end of last year.”
But he sees further consolidation and correction in stock prices as an opportunity for investors. “We are in the early stages of an AI and technology-driven economic cycle and bull market, about two years in now and potentially another five years,” he said.
Demmert is keeping a close eye on the profit margins in upcoming technology-related financial reports.
“Investors are willing to pay for homegrown companies like Amazon (AMZN), Microsoft (MSFT), Alphabet (GOOGL), and Meta (META) because these companies have huge profit margins. ” he said.
“Big tech companies will once again prove to the market that their valuations are justified in their earnings reports over the next two weeks. We expect these companies to deliver on their own.”
He believes now is a good time to shift strategy and downsize 2024’s biggest winners. He plans to use this consolidation period to reallocate these funds to derivative AI companies in software, communications, and utilities, finance, and other sectors. Industry, Healthcare.
“In our view, tough tariff rhetoric is a tool to encourage negotiations with trading partners to reach fairer terms,” he said. “We will be cautious about Chinese stocks given the possibility that China will not negotiate.”
John Creekmar, chief investment officer at Creekmar Wealth Advisors, believes market sentiment on tariffs could change slightly with a single social media post or comment from President Trump. are.
“This headline risk could lead to further market disruption in the near term. We are currently in the early stages of a new administration, so tariff uncertainty is at its peak, and there are concerns about the level of “It remains unclear whether tariffs will be enacted,” he told The Epoch Times.
