Recent U.S. economic data continue to surprise to the upside, with growth, production, and sentiment indicators pointing to resilience beneath the surface. At the same time, equity markets are reacting less favorably to earnings beats as valuations, policy uncertainty, and Federal Reserve expectations raise the bar for results—creating a more selective and sensitive market environment.

US Economy

Q3 GDP growth was revised up from 4.3% to 4.4%, driven by stronger exports, inventory accumulation, and business investment.

Industrial production was better than expected in December, although the headline number was boosted by strong utilities output due to unusually cold weather.

Manufacturing output rose modestly despite expectations for a contraction. The year-over-year growth in industrial production has been driven by business equipment, while production of consumer goods has been stagnant. Tech-related production has been particularly strong. Employment contracted for a fifth consecutive month, but firms expect a significant rebound in hiring ahead.

Hard data, such as GDP, industrial production, and retail sales, have generally surprised to the upside (relative to consensus estimates). Soft data, after a long period of underperforming expectations, have also stabilized. Our estimates suggest that both hard data and soft data now imply above-trend growth.

Based on WSJ’s survey of economists, the probability of a US recession over the next 12 months has declined to 27%, down from a peak of 45% last year.

Americans still rate nurses as the most honest and ethical profession, but trust in healthcare workers and most other occupations has fallen sharply from pandemic-era highs.

Belief in spirituality remains widespread in the US, with 86% of adults believing in a soul and 43% saying they have become more spiritual over their lifetime.

The sharp decline in US birth rates is pushing the higher-education sector toward a “demographic cliff,” as the pool of college-age students shrinks.

Here is a map of natural disaster risks in the continental US.

US Stock Market

 

President Trump announced plans to impose a 10% tariff on imports from eight European countries starting February 1—potentially rising to 25% by June—pending a Greenland-related deal. The escalating tension, exacerbated by Japan’s bond market rout, sent global stock and US equity futures sharply lower. The US dollar weakened. Precious metals jumped to record highs.

The Magnificent 7 has underperformed the S&P 500 for five consecutive days. Seven percent of S&P 500 companies have reported earnings so far, with 79% beating on earnings but with below-average surprise magnitude.

Despite roughly 81% of S&P 500 companies beating fourth-quarter earnings estimates, their stocks have underperformed the index by an average of 1.1 percentage points—the worst reaction on record—as investors focus on weak forward guidance, elevated valuations, and rising macro and policy uncertainty.

 

 

Mag-7 stocks have underperformed other S&P 500 constituents year to date …

 

 

The Fed

 

Inflationary pressures eased notably.

 

 

Trump signaled he is unlikely to nominate Kevin Hassett as the next Fed chair.

 

Source: @financialtimes   Read full article

 

This boosted the odds of Kevin Warsh’s appointment. Markets responded by pricing in fewer rate cuts this year as Warsh is seen as less dovish.

 

Great Quotes

 

‘Well done is better than well said.’ – Benjamin Franklin

 

Picture of the Week

 

Hohenzollern castle, Germany

 

 

All content is the opinion of Brian Decker