Weekly Newsletter January 6th to January 10th
RECAPPING LAST WEEK
Stronger-than-expected economic data moved the goalposts for rate cuts this year, sending Treasury yields sharply higher and U.S. equity indices lower in a shortened trading week. The S&P500 index slid nearly 2%, while the Nasdaq Composite fell 2.3% and the Russell 2000 slumped 3.5%. Eight of eleven S&P500 sectors ended lower, with technology dropping 3% and real estate tumbling 4%. The energy sector was boosted by crude oil prices, which jumped more than 3.5% on Friday after the U.S. announced additional sanctions on the Russian oil industry, threatening supply constraints. U.S. Treasury yields spiked across the curve after December’s job growth came in much higher than forecasted. The 30-year bond yield surpassed 5% for the first time since October 2023 before retreating modestly. Non-farm payrolls expanded by 256k versus expectations for 155k, while the unemployment rate edged down to 4.1% and the “under-employment” rate fell to 7.5% from 7.7%. Wage gains were muted—good news on the inflation front—but the overall stronger picture of the U.S. labor market caused traders to adjust their interest rate-cut assumptions. Fed funds futures aren’t pricing in more than a 50% chance of a cut until June, and sentiment has shifted to reflect only one potential cut this year, although it’s early and much can change. Other economic data supported the notion that the Fed’s easing policy may slow more than initially thought. Preliminary U.S. consumer sentiment for January slid to 73.2 as long-term inflation expectations jumped to +3.3% annualized, up from +3% just a month ago. ISM services PMI rose to 54.1 in December and the prices paid index leapt more than six points to 64.4, suggesting sharply higher costs for materials and services. Overseas, China’s central bank outlined its 2025 priorities to promote a stable economy. Although the bank said it would implement moderately loose monetary policy to support growth, regulators sought to reassure investors last week as the country’s equity and currency markets extended losses. China’s stock exchanges asked some large mutual funds to restrict stock selling, while the central bank announced it will suspend buying government bonds as yields sank to all-time lows. Inflation in China remained subdued last month, raising the specter of deflation. Canadian Prime Minister Justin Trudeau said he would step down as leader of the ruling Liberal party but will stay in his post until a replacement is chosen, most likely in May at the earliest. European stocks and the euro initially rallied after some reports suggested that the potential U.S. tariff plan may not affect the region as extremely as feared. The gains were quickly reversed, however, in large part due to the U.S. dollar’s relentless advance. Eurozone inflation accelerated in December, but the move was anticipated and is unlikely to alter the central bank’s plans for more interest rate cuts.
THE WEEK AHEAD
While last week’s labor market data affirmed the strength of the U.S. economy, attention will quickly pivot shift back to inflation developments, which the Fed hinted at in minutes from its last meeting. Wednesday’s U.S. CPI report is squarely in focus for investors. Headline inflation is forecast to be consistent with the prior month’s pace, but any upside surprise could send Treasury yields even higher and put more downside pressure on equities. Thursday’s retail sales report is expected to confirm resilient consumer spending, which could further hawkish sentiment on the Fed’s interest rate outlook. This week’s U.S. economic calendar also includes the producer price index, housing starts and permits, and regional Fed manufacturing surveys. Earnings season gets underway with reports from the large U.S. banks starting on Wednesday, along with companies like Taiwan Semiconductor and UnitedHealth Group. Overseas, investors will look for evidence that China’s stimulus measures from late last year are starting to show up in the economic data. This week’s releases include GDP, retail sales, and industrial production. China’s trade balance and new loan figures are also expected. Finally, Europe is quiet this week, while the UK has inflation and GDP updates.
CHART OF THE WEEK
Gold glitters in commodity resurgence
Outside of a two-year break from 2020 to 2022, gold prices have been on the rise for the better part of a decade. Despite the rise in interest rates and more specifically real yields in recent years, which tends to hurt gold prices due to it being a non-yielding asset, gold has benefitted from central bank buying, limited supply, and its traditional store of value role. Gold prices bottomed in 2015 and rose to previous all-time highs in August 2020, where the two-year stall started. When global markets troughed in October 2022, gold started a furious rally that has not relented. It took just three months to go from cycle low to new all-time highs and has since jumped another 33%, with last October marking the most recent record high. The S&P GSCI Gold index ($SPGSGC),which tracks gold futures, reflects how prices have been consolidating sideways in a symmetrical triangle pattern since October. Last week’ rally brought the index to the upper technical resistance. Often, symmetrical triangles break in the direction of the prevailing trend—in this case, to the upside. The moving averages are confirming a bullish trend, along with the MACD and RSI oscillators. Interestingly, gold’s latest advance has come along with a continued rise in the U.S. Dollar index ($DXY)—two instruments that historically are inversely correlated. The dollar has not reversed yet, but technical signals are emerging that its uptrend may be losing momentum. A weaker greenback could be a tailwind for gold to break out of its consolidation and push further into uncharted territory.
Source: Charles Schwab Corporation
IMPORTANT LEGAL NOTICE AND DISCLOSURE INFORMATION
Investment advisory service is provided by SVL Holding Corporation dba SVL Investments Management (“SVL”), a California registered investment advisor. Advisory services are subject to advisory fees as disclosed on Form ADV.
Investing involves risks, and investment decisions should be based on your own goals, time horizon, and tolerance for risk. The forecasts or forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice. International investments carry additional risks, which include differences in financial reporting standards, currency exchange rates, political risks unique to a specific country, foreign taxes and regulations, and the potential for illiquid markets.
Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that future performance of any specific investment, investment strategy (including the investments and/or investment strategies recommended or undertaken by SVL) or product made reference to directly or indirectly by SVL in its web site, or indirectly via a link to an unaffiliated third party web site, will be profitable or equal the corresponding indicated performance level(s). Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by SVL), or any non-investment related content, made reference to directly or indirectly on this site will either be suitable or profitable for a client or prospective client’s investment portfolio. Historical performance results for investment indices and/or categories generally do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, or the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results for investment indices.
Certain portions of SVL‘s web site (i.e. blog, Insights, newsletters, articles, commentaries, etc.) may contain a discussion of, and/or provide access to, SVL‘s (and those of other investment and non-investment professionals) positions and/or recommendations as of a specific prior date. Due to various factors, including changing market conditions, such discussion may no longer be reflective of current position(s) and/or recommendation(s). Moreover, no client or prospective client should assume that any such discussion serves as the receipt of, or a substitute for, personalized advice from SVL or from any other investment professional. SVL is neither an attorney nor accountant, and no portion of the web site content should be interpreted as legal, accounting or tax advice.
Rankings and/or recognition by unaffiliated rating services and/or publications should not be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if SVL is engaged, or continues to be engaged, to provide investment advisory services, nor should it be construed as a current or past endorsement of SVL by any of its clients. Rankings published by magazines, and others, generally base their selections exclusively on information prepared and/or submitted by the recognized adviser.
To the extent that any client or prospective client utilizes any economic calculator or similar device contained within or linked to SVL‘s web site, the client and/or prospective client acknowledges and understands that the information resulting from the use of any such calculator/device, is not, and should not be construed, in any manner whatsoever, as the receipt of, or a substitute for, personalized individual advice from SVL, or from any other investment professional.
Each client and prospective client agrees, as a condition precedent to his/her/its access to SVL‘s web site, to release and hold harmless SVL, its officers, directors, owners, employees and agents from any and all adverse consequences resulting from any of his/her/its actions and/or omissions which are independent of his/her/its receipt of personalized individual advice from SVL.