The Week Ahead - January 12th

It was a volatile end to last week, with the S&P 500 and Nasdaq shedding 1.5% and 1.6%, respectively, on Friday as stronger-than-expected jobs data shifted expectations toward a potential rate hike. The 10-year Treasury yield rose from 4.62% to 4.76% in just a week, reflecting the market’s adjustment to resilient employment figures and persistent inflation. Futures are down slightly as the week begins, signaling continued uncertainty.

Broader concerns loom as sticky inflation and solid growth challenge the Federal Reserve's soft-landing narrative. Investors are grappling with the possibility of a policy pivot that includes raising rates instead of the anticipated cuts, muddying the outlook for 2025. Meanwhile, geopolitical and regulatory developments, including TikTok’s looming ban, add another layer of complexity.

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Key Performance Metrics

Market Snapshot:

• S&P 500: -1.5%

• Nasdaq: -1.6%

• 10-Year Treasury Yield: 4.76% (+14 basis points over the week)

Earnings Highlights:

• Delta Airlines:

  • Q4 EPS: $1.85 (+44.5% y/y, beating $1.75 expectations)

  • Revenue: $15.56B (+9% y/y, exceeding $14.2B expectations)

  • Stock surged 9% post-earnings

Economic Data to Watch:

• Tuesday: Dec. PPI (0.3%), Core PPI

• Wednesday: Dec. CPI (0.3%), Core CPI (0.2%)

• Thursday: Initial Jobless Claims (210k), U.S. Retail Sales (0.4%)

• Friday: Dec. Housing Starts (1.32M), Building Permits (1.46M)

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Growth Drivers/Catalysts

• Jobs Report: Strong December jobs data (265k) and lower unemployment (4.1%) suggest continued economic resilience, which may pressure the Fed to maintain or increase rates.

• Delta Airlines: Robust demand for international travel and optimistic guidance for 2025 are bolstering sentiment in the airline sector.

• TikTok Ban: SCOTUS arguments and upcoming political decisions could disrupt the social media landscape and impact major advertising ecosystems.

Investment Considerations

Opportunities:

• Airlines: Delta’s performance highlights the recovery potential in travel and tourism, with international revenue growth leading the way.

• Automation: Companies like Chick-fil-A, leveraging robotics to cut labor costs, are setting benchmarks for efficiency gains in labor-intensive industries.

Risks:

• Rate Hikes: Rising Treasury yields and shifting Fed expectations could dampen equity valuations, particularly in tech-heavy indices like the Nasdaq.

• Geopolitical Risks: The TikTok ban and ongoing trade tensions with China may heighten regulatory scrutiny across multiple sectors.

• Natural Disasters: California wildfires’ estimated $150 billion damage underscores the risks of climate-related disruptions to property and insurance markets.

Closing Note

Markets enter this week on shaky ground, with robust economic data paradoxically fueling bearish sentiment. Investors should remain cautious as key economic reports like CPI and retail sales provide critical signals on inflation and consumer strength. Balancing opportunities in sectors like travel and automation with risks from potential rate hikes and geopolitical tensions will be vital in navigating the complex investment landscape ahead.

Disclaimer: This newsletter is for informational purposes only and does not constitute financial advice. Always conduct thorough research or consult a financial advisor before making investment decisions.