The S&P 500 fell -1.00% this week with Friday's close at 6,040.53.
The index woke up with a case of the Mondays this week with the S&P 500 opening the week at 5,969.04, a gap down of -2.16% relative to last Friday's close at 6,101.24. DeepSeek stole the narrative (click here), but what we found fascinating about Monday's session was the fact that the S&P 500 closed higher than it opened. In other words, the S&P 500 futures market threw a massive temper tantrum Sunday evening and into Monday's open, but when the market opened for regular trading hours on Monday morning the tantrum was over. We found this curious at the time, and a sign of underlying strength, since it's far more common for large gap downs at the open on Monday to find continued selling pressure during Monday's regular trading hours.
Interestingly enough, the S&P 500 went on to completely shrug off Monday's decline and by Friday the index was back dancing with all-time highs at 6,120.91.
This was yet another sign of resilience in the price action. The bulls may have lost 5 yards on 1st-and-goal from the 1 on Monday, but managed to gain it all back by Friday. The Fed's interest rate decision and press conference (click here), GDP data (click here), inflation data (click here) and mega-cap technology earnings (click here) all were taken in stride and Friday's high left the index at 6,120.91, a mere 7.27 points below our all-time high at 6,128.18. But that's where the S&P 500 got Trumped...
President Trump's tough talk on tariffs (click here) is at least correlated to the S&P 500 reversing lower over the final few hours of Friday's trading. The index closed Friday -1.31% below its daily high, and no matter whether Trump is truly to blame or if it was nothing more than continued "resistance" at and around the 6,100 level, Friday's reversal sparked talk of a "double top" on the weekly chart and perpetuates our "Yea, but..." trading range. So, it's now 3rd-and-goal from the 3-yard-line for the bulls.
Regarding the tough tariff talk, we think it's important to remember that Trump's playbook from his prior term is to talk tough, get everyone riled up, and moderate from there.
We're unsure of how the S&P 500 will trade to open the week, or how participants, collectively, will discount the impact of his tariffs, but we're almost certain the S&P 500 will catch a bid if Trump's tough talk on tariffs winds up being nothing more than talk. In other words, if Trump's tariff war is relatively short-lived and amounts to nothing more than leverage, then tariffs serve to build the "wall of worry" and fuel relief rallies that help the S&P 500 climb the wall of worry. It's an optimistic spin, we understand that, but the idea that Trump's tariff war is going to be the death of the economy and corporate profitability seems to be the consensus take and the consensus take rarely proves prescient.
Looking inside the S&P 500, the biggest story this week was the collapse in Nvidia (NVDA). NVDA fell -15.81% this week with Friday's close at $120.07, but even with this week's decline NVDA is still the third largest holding within the S&P 500. It's rather fascinating that the S&P 500 only fell -1.00% this week given NVDA's plunge. Naturally, we saw relative strength in market breadth this week. The S&P 500 Equal Weight Index (SPXEW) only fell -0.54% and the S&P 600 Small Cap Index (SML) only lost -0.49%.
Four sectors gained more than 1% this week (communication services, health care, consumer staples, and financials) and only four of the 11 sectors within the S&P 500 fell more than -1% (industrials, utilities, technology, and energy) thus underperforming the index as a whole. Ultimately, we continue to believe there is a period of prolonged relative strength in everything but the technology sector. In other words, we think SPXEW will outpace the traditional market-cap weighted S&P 500 over 2025. Based on the chart below, there's plenty of room for relative strength moving forward...
The bond market found some upside this week as interest rates across the curve declined a pinch.
The yield on a 1-year Treasury bond closed Friday at 4.14% and the yield on a 10-year United States Treasury bond finished the week at 4.54%. The iShares 20+ Year Treasury Bond Index Fund (TLT) found "support" exactly where it needed to, and if TLT can find continued strength, perhaps in response to lower growth and inflation expectations given Trump's tariff war, then maybe the S&P 500 can find some buying interest in response to the catalyst of lower interest rates.
As for the week ahead, we're on to February and we've got a mountain of market- moving catalysts - from Fed speakers to economic data releases to earnings reports. The S&P 500 is still stuck in the "Yea, but..." range and a winner can't emerge until the index either breaks out and sustains above ~6,100 or below ~5,830. Until such time, any and all price action is noise, not signal, no matter how loud the noises are. "Inside weeks" aren't the norm and with last week's high at 6,120.91 and low at 5,962.92, Friday's close leaves the index almost exactly smack in the middle. So, one week from now there's a great chance that Friday's late-day selloff never happened, or last week's advance from Monday's low to Friday's close never happened. An uncertain, interesting and volatile week awaits!
S&P 500 Primary Trend - Up
The S&P 500 finished the month of January on Friday. The index gained 2.70% for the month and finished January at a new all-time high monthly close. Our work continues to label the primary trend as up, or "bullish".
During uptrends, long-term investors are best served maintaining an equity overweight across their portfolios' asset allocation and relying mostly on passive investing methodologies. Less is more during uptrends, and keeping things simple and straightforward is generally the most rewarding path.
The S&P 500 closed January 2024 at 4,845.65 and January 2023 at 4,076.60. Here we are, two short years later, and the index is higher by 24.66% and 48.18%.
Strength of this magnitude tends to fuel a general sentiment skewed toward "this can't continue". Loss aversion is real (click here) and it fuels pessimism, worry, anxiety and fear following prolonged periods of market gains. As an example, someone out there is considering selling it all tomorrow, literally selling every stock to their name, for reasons that are entirely driven by emotion and have absolutely no evidence-based merit.
This is where we believe market history can help long-term investors. Understanding how the market has behaved in the past can be used to dispel a negative bias, such as "this can't continue".
If we take the price action in January, we can define it as a "Bullish Outside Reversal Month" (BORM). BORMs are defined as a calendar month with a lower low, higher high, and higher close than the prior month. Its intention is to note calendar months that demonstrated eager buying interest into lower prices. Taking January as an example, the S&P 500 traded down to 5,773.31 on 1/13, below December's low at 5,832.30. How did participants behave in response? They bought the dip like mad, lifting the price of the S&P 500 to a new all-time high, a price we were unable to reach in December. Behaviorally, one would expect a BORM to precede a continued advance in the price of the S&P 500 over the months ahead under the basis of the price action in the present being the best predictor of the price action into the future. And that's exactly what we've seen from BORMs in the month of January.
Since 1950, there have been seven prior Januarys to finish as a BORM. The S&P 500's forward 8-12 month returns have then never closed lower. We share this not to suggest there is anything truly predictive here, but we share it to fully support the notion that this absolutely can continue i.e., there is nothing that unfolded in January that suggests the S&P 500 can't continue to climb here in 2025.
Happy Sunday!
Steve & Rick