TMTB Weekly - What we are watching as we head into Q1 Earnings Season / NFLX Preview + Bogeys
The QQQs had a strong week, rallying 3% following a cooler-than-expected CPI print on Wednesday. Last week, we shifted to a more neutral stance while awaiting this key inflation report, which we anticipated would have an outsized impact on the market narrative. Bulls got the result they wanted—softer inflation pushed yields lower, reset Fed expectations in a dovish direction, and reignited a Goldilocks outlook: subdued inflation, steady economic growth, a Fed easing cycle already moving in the right direction, potential deregulation, and an AI supercycle still intact.
Markets are now pricing in 40bps of Fed rate cuts in 2025, bringing expectations back to pre-Jobs report levels but still slightly below where they stood after the December FOMC meeting. The 10-year yield dipped below its April highs, a key technical level to watch in case of another yield-driven equity sell-off. Encouragingly, the 10-year also finished flat on Friday despite hotter economic data—an indication that the market may be more resilient to rate fluctuations than before.
While QQQs haven’t made new highs yet, Friday’s move broke the downward channel from mid-December and cleared the 20-day moving average, both positive near-term technical signals. However, yields remain elevated, and investors want to see further cooling in inflation data before sounding the all-clear.
So what’s next? Today, WSJ reporting that Trump won’t enact any new Tarrifs yet:
President-elect Donald Trump is planning to issue a broad memorandum Monday that directs federal agencies to study trade policies and evaluate U.S. trade relationships with China and America’s continental neighbors—but stops short of imposing new tariffs on his first day in office, as many trading partners feared.
The presidential memo directs federal agencies to investigate and remedy persistent trade deficits and address unfair trade and currency policies by other nations, two longstanding Trump irritants. And it singles out China, Canada and Mexico for scrutiny, directing agencies to assess Beijing’s compliance with its 2020 trade deal with the U.S., as well as the status of the U.S.-Mexico-Canada Agreement, or USMCA, Trump’s updated North American Free Trade Agreement, which is set for review in 2026.
But the memo doesn’t, in itself, impose any new tariffs—a momentary relief for foreign capitals bracing for Trump to immediately impose stiff levies. Instead, the trade policy memo is an indication of debates still roiling the incoming administration over how to deliver on Trump’s campaign trail promises for across-the-board tariffs on imports, and higher duties for adversaries such as China.
That tables one near-term risk. Futures are rallying and dollar is down 1% on the news—its largest decline since November 2023. A weaker dollar could provide relief for large-cap tech, particularly companies with significant international exposure that have been dealing with FX-related headwinds.
Looking ahead, the economic calendar remains relatively light this week, with only jobless claims and the University of Michigan sentiment survey (1/24) as potential catalysts before the Fed meeting on 1/29. That sets the stage for a period where the bull narrative for equities can continue to regain traction. However, after this week, macro risks increase again with the Fed on 1/29, PCE on 1/31, and ISM and payrolls in early February.
While the macro picture in 2024 generally had one high probability path with the Fed steady in their easing, for now we continue to believe certain macro releases will have an outsized influence on the markets and narrative. As we are closer to the end of the Fed easing cycle ending, we don’t think there is one high-probability path; instead, it requires a more tactical stance and constant adjustment. That means adjusting exposure more aggressively, something that worked last week.
Could Trump pressure and cooler econ data keep the Fed lower for longer while growth remains on track? Very possible. Could some hotter econ data shift the Fed back into a less dovish stance, causing yields to rise again and a correction of >10%? Very possible and likely happens at some point in 2025.
For now, we think bulls have shifted into the driver’s seat after taking a back seat for a few weeks but still think this will be a choppy ride: while yields have come down, they are still very much elevated and investors want to see more cooler data/less hawkish fed positioning before sounding the all clear. And despite fed expects shifting back into a more dovish direction, we are still closer to the end of the easing cycle vs. the beginning.