Markets fell through the week on fears of global competition. Will we get back to the status quo or is this a sign of things to come?
Monday
S&P 500-1.46% | NASDAQ -3.07%
Markets slipped at the start of the last trading week of January. Technology and semiconductor stocks were dealt a blow after news of a Chinese Artificial Intelligence (AI) developer being seen as an alternative to US Companies made headlines. The S&P500 dipped and the tech-heavy NASDAQ spiraled lower on the day.
Tuesday
S&P 500 0.92% | NASDAQ 2.03%
Consumer confidence wavered in January but still holds at a high level. After Monday’s AI scare, the S&P500 and NASDAQ recovered about two-thirds of market capitalization.
Wednesday
S&P 500-0.47% | NASDAQ -0.51%
Mortgage applications fell in a week where the Federal Reserve, unsurprisingly, met expectations for keeping interest rates as-is. Looming tariffs on imports have weighed heavily on a possible direction of an inflation up-tick. This is the last thing the Federal Reserve wants to see. Rates range between 4.25%-4.5% currently.
Thursday
S&P 500 0.53% | NASDAQ 0.25%
The market yo-yo continued into Thursday as Preliminary 4th Quarter GDP figures came in. The data showed a decrease from 3rd quarter but still above 2% which is a “normal” growth rate in a developed economy.
Friday
S&P 500-0.50% | NASDAQ -0.28%
The Core Personal Consumption Expenditure Index (PCE) was released on Friday, coming in essentially flat for the month. The data is preferred by the Federal Reserve and further justifies their more hawkish stance on keeping rates steady until they see the PCE begin moving downward again.
Conclusion
S&P 500 -1.00% | NASDAQ -1.64%
The stock market experienced a volatile start to the last trading week of January. The Federal Reserve’s decision to maintain interest rates at current levels combined with concerns over potential tariffs, influenced the market dynamics. A high concentration in large companies (particularly in technology and AI development) presses those dynamics further. The “blue-chip” DOW Jones is up 4.78% YTD while the S&P500 and NASDAQ, which have increased their technology and development stock exposure in the past couple of years, are up 2.7% and 1.64%, respectively. Although technology may be here to stay, there is a risk for over-concentration. A select few stocks don’t represent a diversified strategy nor the breadth of the market. Markets took note of this at the beginning of the week. A periodic rebalance to non-correlated asset classes often provides protection to the downside risk of concentrated portfolios. This further underscores the importance of understanding that isolated events can significantly impact market activity. Lastly, the plan of action for portfolios should include a “deep dive” into the fundamentals of multiple areas of the market to mitigate downside risk.
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