Global Markets Kickstart: The Deep Seek for Yield
The Deep Seek for Yield
Chart of the Week:
Manufacturing Activity Picks Up, U.S. Stock Rotation Opportunities Ahead
In January, the U.S. ISM Manufacturing PMI rose to 50.9, exceeding expectations and returning to expansion since October 2022, signaling improved demand in manufacturing. However, the ISM Services PMI for January was 52.8, below market forecasts, indicating slower service sector growth. As of January 31, 40% of S&P 500 companies reported earnings, with over 70% surpassing expectations. FactSet predicts 14% earnings growth for 2025. While the U.S. economy shows resilience, tensions from U.S.-China trade and tech conflicts could increase market volatility. Short-term market movements may involve sector rotation, with a focus on healthcare, financials, and industrials, and selective tech buys during pullbacks.
Market Recap:
Tariffs, Data, and Earnings Trio Disrupt Market Dynamics
U.S. stocks fluctuated this week, initially dipping before recovering. Economic data, like the ISM Manufacturing PMI, showed a manufacturing rebound, while DeepSeek and tariff concerns caused early disruptions in AI tech stocks. However, a tariff delay and better-than-expected corporate earnings boosted markets globally. Japan’s wage growth and stable service PMI led to expectations of a rate hike and a stronger yen, with some stocks showing good performance. Tech earnings were a focus, with Alphabet beating expectations but its stock fell due to higher capital expenditures. AMD met earnings expectations, but lower-than-expected data center growth affected its stock price. Amazon’s earnings were disappointing, but its continued AI investment raised concerns about its sustainability. U.S. data points to a soft landing, with easier loan standards and expectations of relaxed financial regulations, which have helped boost real estate and financial stocks.
What’s Trending:
Trump Plans Tariffs on Canada, Mexico, and China, Adding Market Turbulence
On February 1st, Trump announced a 25% tariff on Canada and Mexico, and a 10% tariff on China to address trade imbalances, fentanyl imports, and illegal immigration. However, after talks with Canadian and Mexican leaders, the tariffs were delayed by 30 days. In response, China imposed 10%-15% tariffs on U.S. exports of energy, machinery, and vehicles.
In Focus:
Tech Stock Corrections Create Opportunity for Stable Bond Yields
DeepSeek, a Chinese AI startup, launched a new AI model on January 27. This, along with U.S. President Trump’s tariffs on Mexico, Canada, and China, caused a decline in U.S. stocks and AI tech stocks. However, after these events, U.S. corporate bond spreads only rose slightly, indicating strong corporate credit. Moving forward, attention should be given to large tech companies’ capital expenditure cuts and tariff impacts on corporate credit ratings.
