The S&P 500 finished Friday’s trading session in the red, but managed a modest gain for the week. The benchmark index briefly breached the 7,000 level for the first time ever on Wednesday, a significant psychological milestone. This past week was a whirlwind of activity, featuring earnings reports from ten prominent companies, including three tech giants. The Federal Reserve held interest rates steady, a move widely anticipated by the market. However, the tech sector experienced a sharp downturn on Thursday, and President Trump announced his nominee to replace Fed Chair Jerome Powell, adding another layer of complexity to the economic landscape.
For the week, the S&P 500 climbed 0.34%, bringing its January performance to a solid 1.37% increase. Historically, a positive January has often been a bellwether for the rest of the year, a phenomenon known as the “January Barometer.” The Nasdaq Composite, in contrast, was largely flat for the week, though it secured a 0.95% gain for the month.
Several key drivers shaped the market’s trajectory during the final week of January:
**1. Tech Earnings: A Tale of Two Giants and Emerging Opportunities**
The technology sector presented a mixed bag of earnings results. Meta Platforms, the parent company of Facebook and Instagram, saw its stock surge nearly 9% for the week following a robust earnings report that significantly surpassed analyst expectations on both the top and bottom lines. This time, increased spending by the company did not deter investors.
Conversely, Microsoft’s stock experienced a notable decline of over 8% for the week. The disappointment stemmed from its crucial cloud computing business, which failed to generate the excitement investors had hoped for. Despite this short-term setback, the underlying fundamentals of Microsoft’s cloud offerings remain strong.
Apple’s stock, after an eight-week losing streak, finally found some reprieve, though not directly due to its earnings announcement. While the company reported a strong quarter, driven by a significant 23% increase in iPhone sales, the stock dipped on Friday. Lingering investor concerns about the impact of ongoing memory chip shortages on Apple’s production costs continue to cast a shadow.
Beyond the mega-caps, GE Vernova achieved new all-time highs on Friday, buoyed by its Wednesday evening earnings release. Similarly, Corning delivered better-than-expected results, with its shares reaching record levels on Tuesday after securing a substantial $6 billion deal to supply Meta with fiber optic cables for its data centers. Both GE Vernova and Corning saw impressive weekly gains of 10% and 11%, respectively.
**2. Beyond Tech: Industrial Strength and Consumer Mixed Signals**
Starbucks shares tumbled over 6% for the week despite a promising earnings report on Wednesday and a positive Investor Day presentation on Thursday. Both events signaled that CEO Brian Niccol’s turnaround strategy is progressing well. While the stock initially rose in both sessions, it failed to maintain its momentum by the close. Should Starbucks shares continue to decline, it could present an attractive entry point for investors.
Honeywell reached an all-time high on Friday, following a strong earnings report that included accelerated plans for its aerospace spinoff. The industrial conglomerate gained nearly 3% for the week.
Dover experienced a decline of over 2% due to profit-taking after a solid earnings report on Thursday. We recently raised our price target for Dover to $220 from $210 per share.
Danaher’s better-than-expected earnings report failed to lift its stock price, while Boeing’s mixed results led to significant volatility, with both companies closing the week lower.
**3. The Software Sector Takes a Hit Amidst AI Concerns**
The enterprise software sector experienced a significant sell-off on Thursday, impacting many of its key players. Salesforce, a holding in our portfolio, dropped 7% for the week. We had advised caution regarding adding to our position in Salesforce prior to this downturn.
ServiceNow also saw a decline of 10%, despite generally positive earnings and a commitment to aggressive share repurchases. This weakness appears to be driven by ongoing concerns about artificial intelligence (AI) and its potential to disrupt established software business models. This sell-off represents a broader market revaluation of Software-as-a-Service (SaaS) companies, leading to compressing price-to-earnings multiples. Microsoft’s substantial post-earnings drop further contributed to the negative sentiment in the software space.
It’s worth noting that cybersecurity stocks, which benefit from AI advancements, were unfairly caught in this broader tech sell-off. Palo Alto Networks and CrowdStrike fell over 4% and 5%, respectively, on Thursday. We viewed these declines as potential buying opportunities, although both stocks ended the week down over 2% each.
**4. A Pivotal Week for Federal Reserve Policy**
Federal Reserve Chair Jerome Powell indicated on Wednesday that “economic activity has been expanding at a solid pace. Job gains have remained low, and the unemployment rate has shown some signs of stabilization.” Citing these conditions, the central bank concluded its two-day January meeting by holding interest rates steady, marking an end to three consecutive rate cuts.
Just two days later, President Trump announced his intention to nominate Kevin Warsh as the next Fed Chair, succeeding Powell whose term concludes in May. Warsh, a former Fed governor from 2006 to 2011, would require Senate confirmation.
The stock market showed a muted reaction to both the Fed’s decision and the nomination. However, gold and silver, which had seen significant gains on concerns about future Fed independence, experienced a sharp decline on Friday. Warsh is widely perceived as a more hawkish candidate and a known quantity due to his previous tenure at the Federal Reserve.
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