A tremendous week for the stock markets, fueled by the U.S. CPI data on Wednesday. It’s amazing how market sentiment can shift by a single decimal point… As often happens in weeks like this, small caps significantly outperformed the Mag7 (dragged down by Apple and its sales in China).
We highlight the strong start to the year for the European stock market, which is being boosted by a very weak euro, with Italy standing out (a country where we have been very active for several years, and its companies make up a significant percentage of our investment theses).
By sectors, Energy (with oil prices up more than 8% since the start of the year), Materials, and Financials (with excellent earnings results in the first week of earnings season) have led this week. On the opposite side, the Healthcaresector (heavily impacted by Eli Lilly, down 9%, which dropped 8% on Tuesday after Q4 sales forecasts for its weight-loss drug Zepbound came in below expectations) struggled.
Another winner this week has been Bitcoin, mainly driven by the potential intention of Trump (whose presidency begins this week) to announce a strategic Bitcoin reserve. As an anecdote? The cryptocurrency $TRUMP surged over 5000% in 24h since its launch surpassing $10 billion early Saturday morning.
Zooming in on styles, Momentum continues to lead (after an incredible 2024), and Private Equity funds have started the year strong after two very tough years.
Of the few that ended the week in the red, VIX (completely logical, being the so-called “fear indicator”) closed the week below $16, along with the Japanese Nikkei and bonds, which retreated (as expected, moving with a significant correlation to the market’s interest rate cut forecasts) after two weeks of upward movement.
The Dollar maintains its strength (as you can see in detail in our new One-pager on Currencies & other indices, launched this week in the section “Interesting Data about markets this week & YTD”).
We hope these new modifications to this section are useful, and we will continue iterating and improving with your feedback. Our goal is to provide the most comprehensive summary possible so that any investor can quickly review what happened in the markets this week in 5 minutes.
Macro highlights
US CPI
The December CPI report reflects a mixed inflationary landscape in the U.S., with upward pressure in goods and a slight deceleration in services.
- Headline inflation rose 0.39% MoM, the largest increase since March, exceeding both November’s 0.31% and the expected 0.3%. On an annual basis, the rate climbed to 2.9%, marking the third consecutive increase, in line with market expectations.
- Core inflation, which excludes volatile items like food and energy, increased by 0.23% monthly, below the forecasted 0.3%, and its annual rate eased slightly to 3.24% from 3.3%.
Goods inflation showed a rebound, driven by energy prices, with gasoline surging 4.4% in December (And watch out because the recent increases in the price of oil barrels are going to drive this component even higher in the coming months) Deflation in goods has nearly disappeared on an annual basis.
Services inflation moderated to 4.4% annually, down from 4.6%, largely due to slower increases in housing costs (4.6% vs. 4.7%). However, transportation services accelerated to 7.3% annually.
SuperCore index (services excluding housing) rose 0.28% MoM, bringing its annual rate down to 4.17%.
And translated to the market, it means that everything is no longer as clear as last week (only one rate cut in 2025). It’s amazing how much one decimal changes everything and the twists and turns that come from it. But these are the current rules of the game, and you have to understand them because they determine market sentiment.
Retail Sales
U.S. retail sales data for December were mixed, with a 0.4% monthly increase—the smallest in four months—below forecasts of 0.6%. Gains were led by miscellaneous retailers (+4.3%) and sports goods (+2.6%), while declines were seen in building materials (-2%) and food services (-0.3%).
Core sales, used for GDP calculation, rose 0.7%, the largest gain in three months.
Europe
Germany: German GDP fell by 0.2% after a 0.3% decline in 2023. The main cause was a lack of investment (the services sector grew by 0.8%). These figures come just weeks ahead of the country’s crucial snap election, which is expected to boost Germany’s competitiveness and reduce the uncertainty of recent months.
Eurozone: The next ECB meeting is on January 30, and after the minutes of the December meeting published this week, another 25 bps rate cut to 2.75% is anticipated.
UK: CPI unexpectedly eased to 2.5% in December (down from 2.6% in November). This strengthens market expectations that the BoE will lower interest rates in February. Meanwhile, GDP saw a modest increase of just 0.1% in November.
Interesting Data about markets this week & YTD
Earning Season 1Q25
This week, earnings season kicked off (mainly in the banking sector) with very strong results. In fact, the financial sector has been one of the main winners of the week, even though the CPI data should, in theory, have rotated flows from this sector to others. JPMorgan +8%, Citibank +12%, Blackstone +10%, Wells Fargo +10%.
Consensus forecasts for 4Q24 EPS show growth of +11.7%. Specifically, EPS for the Mag 7 is expected to grow by +22%, while EPS for the other 493 companies in the index is expected to grow by +8.7%.
This coming week, Netflix reports among the Mag 7. On our end, we will mainly focus on the recreational vehicles sector, where we have been active on the short side in the recent past but currently have no exposure. (This week, dealer MarineMax reports and usually provides a general overview of what to expect over the next 15 days with the rest of the companies in the industry.)
Remember that Monday will be a holiday on Wall Street due to Martin Luther King Jr. Day.