Over the past few trading sessions—January 21, and 22, 2025—the S&P 500, NASDAQ Composite, and Russell 2000 exhibited varied performances, reflecting differing market dynamics. (Are we back on track?)
January 21, 2025 (Tuesday)
- S&P 500: The index rose 0.9% to close at 6,049.24, driven by gains across various sectors, notably industrials, which increased by 1.8%.
- NASDAQ Composite: The tech-heavy index gained 0.6%, closing at 19,756.78, supported by strong technological stock performances.
- Russell 2000: The small-cap index advanced 1.5%, reaching a one-month high, indicating robust performance among smaller companies.
January 22, 2025 (Wednesday)
- S&P 500: The index increased by 0.6% to 6,086.37, nearing its record high from early December.
- NASDAQ Composite: The index surged 1.3% to 20,009.34, propelled by strong technological stock performances, particularly Netflix and Oracle.
- Russell 2000: The index declined by 0.6% to 2,303.72, affected by higher Treasury yields in the bond market.
These movements highlight a divergence in market breadth, with large-cap and technology stocks outperforming, while small-cap stocks faced challenges due to rising bond yields.
On January 21, 2025, the NASDAQ Composite index experienced a positive trading session, rising by 0.6% to close at 19,756.78.
While specific figures for advancing and declining issues within the NASDAQ Composite are not detailed in the available sources, broader market data indicates a favorable trend. On the NASDAQ exchange, advancing issues outnumbered decliners by a ratio of approximately 2.18-to-1.
Additionally, the NASDAQ Composite recorded 101 new 52-week highs and 58 new lows on that day.
These indicators suggest a strong market breadth, with a significant number of stocks contributing to the index’s overall gain.
On Wednesday, January 22, 2025, U.S. stock markets experienced notable gains, primarily driven by strong performances in technology and artificial intelligence (AI) sectors.
S&P 500 Performance
The S&P 500 rose by 0.6%, closing at 6,086.37, approaching its all-time high set in early December.
NASDAQ Composite Performance
The NASDAQ Composite surged 1.3%, closing at 20,009.34, surpassing the 20,000 milestone for the first time.
Key Factors Fueling the Market Rally
Robust Earnings from Technology Companies
- Netflix: The streaming giant reported a record addition of nearly 19 million subscribers in the latest quarter, surpassing analysts’ expectations. This growth enabled Netflix to implement price increases for most service plans. Consequently, Netflix’s stock jumped 9.7%.
Major Investment in AI Infrastructure
- Stargate Initiative: President Donald Trump announced a $500 billion investment in AI infrastructure, termed the ‘Stargate’ project. This initiative involves collaboration between Oracle, OpenAI, and SoftBank to develop data centers and electricity generation necessary for AI advancement in Texas. Following this announcement, Oracle’s stock surged 6.8%, and other AI-related companies, such as Nvidia, saw significant gains.
Positive Economic Indicators
- Recent data indicated strong economic growth coupled with cooling inflation, bolstering investor confidence. Additionally, the Federal Reserve is expected to maintain interest rates unchanged in its upcoming meeting, with a potential rate cut anticipated in July.
These factors collectively contributed to the market rally, with technology and AI-focused stocks leading the charge. However, it’s noteworthy that despite the overall positive trend, the Russell 2000 index, representing smaller companies, declined by 0.6%, influenced by rising Treasury yields.
Tech Stocks and AI Investments Propel Market
On January 22, 2025, several financial institutions released their earnings reports, reflecting a range of performances influenced by various strategic decisions and market conditions.
Discover Financial Services
- Discover Financial reported a substantial increase in fourth-quarter net income, reaching $1.29 billion, or $5.11 per share, up from $366 million, or $1.45 per share, in the same period the previous year. This significant growth was primarily due to a reduction in provisions for credit losses, which decreased to $1.20 billion from $1.91 billion, and a 4.7% rise in net interest income to $3.63 billion. Additionally, Discover announced its acquisition by Capital One Financial in an all-stock deal valued at $35.3 billion, positioning the combined entity as the sixth-largest U.S. bank by assets.
Ally Financial Inc.
- Ally Financial exceeded profit expectations, reporting adjusted earnings per share of 78 cents and revenue of $2.03 billion for the fourth quarter. Although these figures represent a slight year-over-year decline, they surpassed analyst estimates. The company’s performance was bolstered by cost-cutting measures, including workforce reductions and changes in accounting for electric vehicle leases. Moreover, Ally announced the sale of its credit card business to CardWorks and its subsidiary Merrick Bank, a move aimed at streamlining operations and focusing on core businesses.
HDFC Bank
- India’s largest private lender, HDFC Bank, reported a net profit of 167.36 billion rupees ($1.94 billion) for the third quarter ending December 31, aligning closely with analyst expectations. However, the bank experienced a decline in asset quality, with gross non-performing assets rising to 1.42% from 1.36% in the previous quarter, primarily due to an increase in bad agricultural loans. Provisions for loan losses and contingencies also increased by 17%, amounting to 31.54 billion rupees.
These earnings reports highlight the diverse challenges and strategic responses within the banking sector, including mergers and acquisitions, cost management, and asset quality considerations.
As of January 22, 2025, the market rally appears to be back on track, driven by strong corporate earnings, significant investments in technology infrastructure, and favorable economic indicators.
On Wednesday, January 22, 2025, the Russell 2000 index, which represents small-cap companies, declined by 0.6%, closing at 2,303.72.
This downturn followed a period of gains, including a 4% rise over the preceding five days, culminating at 2,275.88.
Factors Contributing to the Decline
Rising Treasury Yields
- The yield on 10-year U.S. Treasury notes increased by two basis points to 4.6% on January 22, 2025.
- Higher yields can make borrowing more expensive and reduce the attractiveness of equities, particularly impacting small-cap stocks, which often have higher debt levels and are more sensitive to interest rate fluctuations.
Market Rotation into Technology and AI Sectors
- Significant investments in artificial intelligence infrastructure, such as President Trump’s $500 billion ‘Stargate’ project, boosted technology stocks.
- This shift in investor focus towards larger tech companies may have drawn capital away from small-cap stocks, contributing to the Russell 2000’s decline.
My Opinion
In summary, the Russell 2000’s decline on January 22, 2025, can be attributed to rising Treasury yields and a market rotation favoring large-cap technology and AI-focused companies.
On January 21 and 22, 2025, the S&P Mid-Cap 400 Index, which tracks the performance of mid-sized U.S. companies, exhibited the following trading activity:
January 21, 2025
The S&P Mid-Cap 400 Index closed at 3,315.10, reflecting a 0.11% increase from the previous trading day.
January 22, 2025
The index maintained its position, closing at 3,315.10, unchanged from the previous day.
Analysis
The stability in the S&P Mid-Cap 400 Index on January 22, 2025, contrasts with the broader market trends observed in larger indices. While the S&P 500 and NASDAQ Composite experienced gains, mid-cap stocks remained steady. This divergence may be attributed to investor focus on large-cap technology and AI-related companies, especially following significant announcements such as President Trump’s $500 billion ‘Stargate’ AI infrastructure project. The concentration of investments in these sectors likely led to a neutral impact on mid-cap stocks, resulting in the observed stability of the S&P Mid-Cap 400 Index.
Netflix’s Strong Performance
Netflix reported exceptional fourth-quarter earnings, adding a record 18.9 million subscribers, bringing its global total to 300 million. The company also announced a subscription price increase, with the standard ad-free tier rising from $15.49 to $17.99 per month, to continue investing in unique content. Additionally, Netflix projects its 2025 revenue to be between $43.5 billion and $44.5 billion, exceeding prior forecasts.
Market Valuations and Investor Behavior
While market valuations are elevated, the momentum driven by strong corporate earnings and investor optimism persists. Initial growth in earnings was projected to around 8% for the 4th quarter, that number now seems obsolete. “Guess” projections have increased to around 12%. This is based on the extraordinary gains big companies are making in productivity. AND THE MARKET LOVES THIS! The institution’s preference for highly liquid mega-cap stocks allows investors to execute large transactions with minimal market impact, providing a perceived safe haven amidst potential volatility.
S&P midcap 400
I plan on adding the mid-cap to our assessment for a while in 2025. Although it seems Large Caps are back on the institution’s focus list throughout 2025 I expect mid-caps to share in the benefit of the uptrend as the year moves forward with deregulation many of these companies will benefit. I will continue to follow the small-cap Russell 2000. But in the short term, I believe it is better to avoid them simply because of long-term rates. I do think rates will come down later this year. But the road lower for interest rates is going to be filled with potholes such as one-off PCE Reports (health care cost, employment reports (I expect surprises higher and lower like last year), and shelter readings in the CPI report (because of the increase in rents since the California fires. Institutions tend to avoid pot-holes so I think we should follow their lead. They have more money than us. If you are a short-term trader, large-cap is the place to be for now.
My Opinion
My cautiously optimistic bullishness about earnings and a market recovery seems to have come to fruition. Large Cap is back in play for the short-term trader. For a position trader (3 months to 18 months) like myself, I am looking to take money off the table when the opportunity arrives and look for a new entry point.
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