The stock market continued its strong start to the year, extending gains to outperform any presidential term since Ronald Reagan’s inauguration in 1985.
This week, the S&P 500 climbed 1.7%, fueled by optimism over pro-growth economic policies and a potential softening of trade tensions with China. The dollar weakened significantly, and Treasury volatility declined.
Market Drivers: Policies and AI Developments
The market has reacted positively to the new administration’s focus on boosting the economy and lowering taxes while adopting a more conciliatory tone toward tariffs on China. It seems to be paying off to remain invested.
A major development in the tech sector further bolstered confidence. SoftBank Group Corp., OpenAI, and Oracle Corp. announced a $100 billion joint venture to fund AI infrastructure in a move unveiled alongside President Trump.
Friday’s Performance: A Slight Dip
Friday brought a modest market pullback:
- The S&P 500 dipped 0.3%,
- The Nasdaq 100 fell 0.6%,
- The Dow Jones Industrial Average declined 0.3%.
Despite the dip, select companies gained:
- Meta Platforms rose on plans for significant AI investments.
- Cryptocurrency-related stocks rallied after a supportive executive order.
However, Nvidia and Texas Instruments weighed on the tech sector, with the latter tumbling on a disappointing earnings forecast.
Broader Market Trends: Inflation, Bonds, and Oil
Bond yields declined as consumer sentiment weakened, reflecting signs of cooling economic growth. The 10-year Treasury yield fell to 4.62%.
Oil prices recorded their first weekly decline of the year, driven by discussions of potential energy dialogues with Russia and calls for lower prices.
Despite recent inflation concerns, a strong economy and labor market have supported the market.
Weekly Market Performance
For the week:
- The S&P 500 advanced +1.7%,
- The Nasdaq Composite climbed +1.7%,
- The Dow Jones Industrial Average surged +2.2%.
Friday’s Closing Levels
| Index | Close | Change | %Change |
|---|---|---|---|
| DOW JONES | 44,424.25 | -140.82 | -0.32% |
| S&P 500 | 6,101.24 | -17.47 | -0.29% |
| NASDAQ | 19,954.30 | -99.38 | -0.50% |
| US 10Y Yield | 4.621% | – | – |
| VIX | 14.85 | -0.17 | -1.13% |
Key Focus: Tech Earnings and AI Momentum
The upcoming tech earnings season will test the resilience of this rally. Investors are particularly keen to see if sky-high expectations for AI demand materialize. The $100 billion AI infrastructure venture announced by SoftBank, OpenAI, and Oracle has already provided a significant boost to the sector.
Market Outlook: Volatility and Opportunities
David Lefkowitz at UBS Global Wealth Management expects heightened volatility in 2025 due to concerns over AI investments, trade policy, and fluctuating interest rates. However, he views market dips as buying opportunities.
Inflation remains a central concern, but the Federal Reserve is likely to hold interest rates steady after implementing three rate cuts late last year. Analysts expect no major changes until inflation shows substantial progress toward the Fed’s 2% target.
Corporate Earnings: A Beacon of Optimism
One of Wall Street’s key drivers is strong corporate earnings. Companies in the S&P 500 that reported better-than-expected profits have significantly outperformed, setting the stage for what could be the strongest post-earnings period since 2018.
Final Thoughts
Friday’s slight pullback could indicate profit-taking as valuations soar. While some caution is warranted, the overall trend remains bullish, with the market hitting new highs earlier this year. Investors should prepare for another attempt to break these records convincingly, which could signal sustained upward momentum.
As always, hope for the best but stay prepared for the worst.
Source: CBOE, Bloomberg
This commentary was written by James Gomes, a seasoned finance professional with over 30 years of industry experience, including a tenure exceeding 20 years at a prominent US bank.
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