Weekly Market Analysis: Recap and Forecast. The Week of January 21, 2025

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Per our message last week, hopefully, you all bucked up and did enjoy the rollercoaster ride the market gave us before, on and after CPI inflation report. All 3 indexes closed the week back to where it started at the month, with the Dow finished the best since November and is now up 1.5% for the month. The S&P 500 and Nasdaq are poised to catch up with the Dow based on the charts, with the absence of Fed rate cut concern. Optimistically, the U.S economy could be in good place of healthy growth and gradual disinflation encouraged by last week inflation data. In addition, real GDP grew 2.6% in 4^th quarter and experts expect similar pace in 2025, helped by signals from the labor market being steady, not overheating.

Given those data, some investors think that rate cuts may be still justifiable, as some believe there could be 2 cuts this year 1 in June and 1 in December, and another round in 2026, which means the Fed will stop its easy cycle at a rate of 3.50%-$3.75%.  It’s too early to know for sure, but at the current moment, the economy is healthy shown by Financials kicking off the earnings season with stella corporate profits and investment spending on AI should continue to lead growth.

But now Trump is back in White House, could bring some uncertainty to markets, especially when it comes to his promises to ramp up tariffs on imports, which could spark a trade war. Market volatility is set to pick up as Trump 2.0 begins with mixed expectations of both hope coming from tax cuts which helps increase corporate profits and uncertainty of tariffs that could disturb growth spark inflation concerns. He may impose universal tariffs of 20% or even more on China goods and on European autos and Mexican EV. Therefore, we should expect tariff news is likely to continue creating volatility in financial market, even though their impact on Fed policy may be more double-edged which creates both losers and winners at the same time.

In summary, there has been a lot of uncertainty surrounding the specifics of Trump’s policies, and that uncertainty has made it hard for the market to price in the impact of those policies into current stock valuations. That’s why we should expect volatility to continue, perhaps even with higher intensity as the market is going to react from both expectation and speculation from what Trump says and what he is going to do. With that in mind, the 3 policy areas that investors will be paying attention to are import tariffs, deregulation and corporate tax cuts, besides the Fed rate cuts and balance sheet factor which we may see coming soon later.

Last week, $SPY bounced off from $575, got back over $580 and traded through $595 and closed at $597.50. $QQQ held its support range $500-$505 and popped to $518, consolidate to $510-$513.50 then traded to $520 PT. This week both $SPY and $QQQ are right at their descending topline of the wedge. $SPY is currently in $595-$600 range. Holding $595, look to trade over $601 to $605-$606 then $608-$610. If $SPY fails to hold $593.70, look for it gets down to $590-$589 area. If it fails to hold there, look for $SPY to fill the gap below to $585. $QQQ is in $520-$524 area. If it breaks through $525, trade to $528.50 then $530, then $535. If $QQQ fails to hold $517.50, it may trade down to $510-$509 area. 

Being a short week as investors are still digesting the feeling of joys and fears from what the new administration is going to do and while waiting for FOMC rate decision next week, we should expect some volatility but may be at lighter volume. We will focus on our FAANG’s techs and some earnings this week. Noticeable earnings are $NFLX, $DHI, $STX, $UAL, $AAL, $IBKR, $SCHW. On the side note, Cryptos markets are heating up the TRUMP and MELANIA coins and other meme coins are moving. Crypto related stocks may be something to consider.  In the meantime, have a wonderful week and best of wishes to all. Namaste!!!!