Wentz Weekly: Tariffs?

Wentz Weekly Insights
Tariffs, Tariffs, Tariffs

After two straight weeks of declines to start the year, US stocks have now seen two straight weeks of gains, hitting a new record high on Thursday for the first time since December 6. Fixed income markets were relatively unchanged as Treasury yields remained flat through the week as investors continued to weigh the impact of potential Tariffs from President Trump.

While stocks saw broad gains, it was a solid week particularly for tech and AI names, including Netflix which saw a 14% gain after its earnings results blew past estimates. It saw a record 18.91 million new subscribers in the month, well ahead of the estimates of around 10 million and well more than the company’s guidance. The company said the growth was broad based across content, marketing, and typical fourth quarter seasonality.

But what should have made this easy to see coming was the company’s move into live events. In the fourth quarter it hosted the highly anticipated Tyson/Paul boxing match as well as the NFL Christmas Day games. It is now seeing half its new subscribers signing up for the ad-supported version, which comes at a lower cost for consumers but with ads.

Artificial intelligence (AI) was another big theme last week and even more to begin this week. The big headline last week was a new conference between President Trump, OpenAI, Oracle, and Softbank where the three companies announced plans to create a joint venture called Stargate that would invest up to $500 billion to build out artificial intelligence infrastructure like data centers over the next four years. They said the goal was to ensure the US remains the global leader in AI.

However, AI related stocks are on pace to see a significant decline at the open as of this writing Monday morning. Weekend headlines reported Chinese tech company DeepSeek has revealed a new AI model that rivals US models but at a fraction of the cost, using less advanced chips. The cheaper model raised concerns about valuations of some of the US companies involved in the artificial intelligence space. There will be many competitors in the space and this just reflects the volatility that happens in markets, and perhaps an excuse for investors to take profits after the large run in stocks the past two years.

One of the bigger overhang on markets has been the tariff potential given Trump’s rhetoric during his campaign that he would impose 25% tariffs on all imports across the board. However, concerns eased somewhat last week when Trump took office after less hawkish commentary on tariffs. Trump did not immediately impose tariffs on China or Canada and Mexico as was expeted. He did comment during the signing of executive orders that the US would set a February 1 deadline where he would impose 25% tariffs on Mexico and Canada. He later said he was thinking about imposing tariffs of 10% on imports from China “probably February 1.”

The reason for concern about tariffs revolves around the potential for higher prices and the potential inflationary pressures that brings. This question has been put in front of the Fed a number of times and policymakers have decided to approach it with caution, saying the environment is uncertain but the Fed refuses to speculate on policy changes until the implications are more clear.

We are expecting to hear more on this topic this week as the Fed holds its policy meeting and announces its policy decision at the conclusion of the meeting Wednesday afternoon. While no changes in policy (interest rates) are expected, we are looking for any clues at future policy moves. The market has significantly adjusted its views on potential rate cuts for 2025 – expecting two rate cuts this year after having projected 3-4 rate cuts just two months ago.

Despite tariffs, the market view on this administration has been more optimistic due to the potential for (an extension to) tax cuts, US investment (foreign investment in the US, example Stargate), and deregulation. Markets are also optimistic on earnings growth, which has continued to push stocks higher. It will be a big week ahead with a large chunk of S&P 500 companies set to report which will provide investors a better idea of the earnings trend.

Week in Review:
It was a positive week for US stocks with the major US indices finishing as follows: Dow +2.15%, S&P 500 +1.74%, Nasdaq +1.65%, and Russell 2000 +1.40%. Treasuries were pretty flat for the week with the two-year Treasury yield down one basis point to 4.28% while the 10-year yield was unchanged at 4.63%. Bitcoin saw a more muted week, rising less than 1%. Gold increased 1.2%, the dollar index saw a larger decline of 1.8%. Finally, oil fell 4.1%.

Recent Economic Data

• Jobless Claims: The number of unemployment claims the week ended January 18 was 223,000, an increase of 6k from the prior week with the four-week average relatively unchanged at 213,500. The number of continuing claims was 1.899 million, up 46k from the prior week for the highest number of continuing claims since November 2021. The four-week average for continuing claims was relatively unchanged at 1.866 million.

Company News

• Meta: Meta said it is exploring new wearable devices like watches and camera equipped earbuds, both that would compete with Apple, as well as developing smart glasses for athletes in collaboration with Oakley, reports Bloomberg. It plans to release high-end glasses this year with a built in display that would be able to run simple software apps, view notifications, and see photos that were taken by the glasses. Separately, Meta CEO Zuckerberg said in a Facebook post that the company will spend $60 to $65 billion in AI capex this year to build out its infrastructure.

• Apple: Apple’s sales of iPhones fell 18% in China, putting it in 3rd place in China behind Huawei and Xiaomi in terms of smartphone sales, which led to a couple downgrades by analysts.

• Netflix: Netflix reported strong quarterly financial results which sent shares 15% higher Wednesday. It said it added 18.91 million new subscribers in the quarter, well above estimates of 10 million with management saying the growth was broad based across content, marketing, and typical Q4 seasonality, though also likely driven by key live sporting events like the Tyson/Paul fight and the Christmas NFL games. It said half its new members signed up for the ad-supported subscription. Revenue guidance was a little higher than last forecast range but was held down by a stronger dollar. They did not issue subscriber growth guidance as they have now discontinued that to focus more on sales and profits. It also said it will raise prices across most subscription services.

• CNN (Warner Bros. Discovery): CNBC reported that CNN is planning to lay off hundreds of employees to help the network lower production costs and consolidate teams as it refocuses its efforts on streaming. It will look at producing more shows in Atlanta versus New York or Washington to reduce costs.

• Boeing: Boeing shares fell after reporting preliminary Q4 results that were lower than estimates with a large loss driven by the seven week strike, costs related to layoffs, and charges in its Defense/space segment.

Other News:

• Stargate: President Trump announced in a news conference Tuesday that OpenAI, Oracle, and Softbank are planning to create a joint venture called Stargate that would invest up to $500 billion to build artificial intelligence infrastructure (like data centers) over the next four years with the goal of ensuring the US remains the global leader in AI. Sources have said Stargate would start with a data center project in Texas before expanding to other states. After the announcement there was speculation over financing of the investment effort.

• Crypto Task Force: Under the new leadership after Trump’s inauguration, the acting chair of the SEC said the Securities and Exchange Commission would launch a “crypto task force” that would be aimed at “developing a comprehensive and clear regulatory framework for crypto assets,” as part of Trump’s plan to lower the regulatory barriers for crypto assets. According to the SEC, the panel will be tasked with developing a clear set of rules while addressing the issues around registration of cryptocurrencies. Later in the week, Trump signed an executive order to create a crypto working group to advise his team on policies in the crypto industry with its mission to prepare a report for the Trump team within six months that will propose a regulatory framework and legislative efforts, and address how feasible it would be to establish a digital asset stockpile.

• Trump’s World Economic Forum Message: Trump made an appearance (virtual) at the World Economic Forum in Davos yesterday, calling for Saudi Arabia and other OPEC nations to bring down oil prices, “demanding” a decrease in interest rates, pledged rapid approvals for AI data center power plants, and said his administration will pass the “largest tax cut in American history.”

• News on tariffs:

  • Trump said during the signing of executive orders that he plans to impose tariffs of 25% on Mexico and Canada “because they’re allowing a vast numbers of people to come in, and fentanyl to come in.” Then he said he was thinking about imposing tariffs of 10% on imports from China “probably February 1.”

  • Trump threatened Russia with tariffs and sanctions if it does not reach an agreement to end its war in Ukraine.

• China’s Effort To Support Stocks: China said it is encouraging state-owned funds and insurers to buy more shares in Chinese companies in an effort to stabilize its struggling stock market. Public funds will be required to increase their A-share holdings by at least 10% annually over the next three years with large state owned insurers encouraged to allocate 30% of their new annual premium to A-share stock.

• Central banks:

  • Norway’s Norges Bank left its benchmark interest rates unchanged after last week’s policy meeting, however signaled it is ready to cut rates at its next meeting in March for the first time this cycle.

  • The Bank of Japan raise interest rates by 25 basis points to a new policy rate of 0.50%, its third hike this cycle bringing its rate to the highest since 2008. It also upped its inflation outlook and lowered its growth outlook

WFG News

2025 Economic & Market Outlook Meeting

Tuesday January 28 – 12:00 pm – Ravenna Office Downstairs Banquet Hall
Tuesday January 28 – 6:00 pm – WFG Auditorium in Hudson, OH

Wentz Financial Group will be holding its semi-annual Economic and Market Outlook Seminars on the dates above. Join us as we recap a positive 2024, explain how we got to where we are today, as well as give our expectation and forecast on the economic and market environment and how that will affect portfolios in another challenging year ahead. We will have four seminar times. Please RSVP by responding to this email or by calling the office at 330-650-2700. Seat are limited for each event and will be on a first come first served basis. A buffet style meal will be served approximately 30 minutes before each event.