Weekly Wrap: Earnings, Economic Data, and Tariffs Drive Uncertainty

This past week was marked by heightened volatility across financial markets, driven by a combination of corporate earnings reports, key economic data, and escalating trade tensions. The Dow Jones Industrial Average managed to eke out a small gain, while the broader S&P 500 and Nasdaq Composite both recorded declines. The Russell 2000, representing smaller-cap stocks, also fell.

The major market-moving events of the week included concerns over a Chinese AI platform that sent semiconductor stocks tumbling, earnings from high-profile technology firms, the Federal Reserve's latest policy update, and the White House’s confirmation of tariffs on key trading partners. While economic data remained largely supportive, the uncertainty surrounding trade and corporate guidance weighed on investor sentiment.

DeepSeek AI and Its Impact on Semiconductor Stocks

One of the most significant market disruptions early in the week stemmed from news about China’s DeepSeek AI platform. The platform is reportedly far more resource-efficient than existing U.S.-based alternatives, such as OpenAI’s ChatGPT. The potential implications for semiconductor companies were severe, as investors worried that DeepSeek could reduce demand for high-end AI chips from firms like NVIDIA.

In response, NVIDIA shares suffered a historic one-day loss of 17 percent on Monday, marking the largest single-day decline in market capitalization in the company’s history. The broader semiconductor sector also faced a sharp sell-off, with the PHLX Semiconductor Index (SOX) falling over 9 percent.

While it remains to be seen whether DeepSeek will disrupt AI investment strategies, the reaction in the market indicates that investors are reassessing capital spending plans across the industry. Companies that have been heavily reliant on AI-related revenue growth may face increased scrutiny going forward.

A Mixed Earnings Season

This week also featured earnings reports from several of the biggest names in the stock market. Apple, Microsoft, Meta Platforms, and Tesla all reported results, with varying impacts on their stock prices.

Apple delivered strong earnings, driven by services revenue, but iPhone sales fell short of expectations. Despite this, Apple’s stock closed nearly 6 percent higher for the week, as investors focused on its record number of active devices and expanding ecosystem.

Meta Platforms also impressed, gaining 6.4 percent on the week, while Microsoft struggled, shedding 6.5 percent despite strong cloud revenue growth. Tesla, meanwhile, posted a relatively muted response, declining slightly by 0.5 percent for the week.

Other notable earnings reports came from IBM, which surged nearly 14 percent, and Boeing, which struggled amid ongoing production challenges. General Motors and Lockheed Martin also posted significant declines following their respective earnings reports.

The Federal Reserve Stays the Course

The Federal Open Market Committee (FOMC) held its first policy meeting of the year and voted unanimously to leave interest rates unchanged at a target range of 4.25 to 4.50 percent. This decision was widely expected, but investors were closely watching for any changes in the Fed’s language regarding inflation and economic conditions.

In its statement, the Fed acknowledged that inflation remains somewhat elevated but removed a prior reference to “progress toward the 2 percent objective.” This subtle shift suggests that policymakers remain cautious about the inflation outlook.

Fed Chair Jerome Powell reiterated that the central bank is not in a rush to adjust its policy stance, citing strong economic conditions. His remarks triggered some volatility in both equity and bond markets, but overall, there were no major surprises from the Fed meeting.

Economic Data Shows Strength

This week’s economic data continued to paint a picture of a resilient economy.

- Initial jobless claims came in at 207,000, signaling ongoing strength in the labor market.

- Personal spending in the fourth quarter grew at a 4.2 percent rate, marking the best performance since early 2023.

- The core-PCE Price Index, the Fed’s preferred inflation gauge, rose 2.8 percent year-over-year, remaining steady for the third consecutive month.

While inflation remains above the Fed’s target, the stability in core PCE readings suggests that price pressures are not accelerating, which could support expectations for eventual rate cuts later in the year.

Tariffs Drive Market Volatility

Perhaps the most significant late-week development was the White House’s confirmation that new tariffs on Canada, Mexico, and China would take effect on February 1. The administration imposed a 25 percent tariff on imports from Canada and Mexico, alongside a 10 percent tariff on Chinese goods.

The rationale for these tariffs was linked to concerns over immigration, trade deficits, and the fentanyl crisis. However, the move sparked concerns about rising costs and potential retaliation from key trading partners.

Although rumors surfaced that negotiations might lead to a reversal or softening of the tariffs, the uncertainty heading into the weekend led to a sell-off in equities. The major indexes all closed lower on Friday, with Apple even surrendering a 4 percent post-earnings gain to end the day in negative territory.

Market Performance for the Week

Despite the volatility, the Dow Jones Industrial Average managed to finish the week with a small gain. However, the S&P 500, Nasdaq Composite, and Russell 2000 all posted losses. The biggest drag came from the tech-heavy Nasdaq, which fell 1.6 percent due to the sharp decline in semiconductor stocks.

- Dow Jones Industrial Average: +0.3 percent for the week, +4.7 percent year-to-date

- S&P 500: -1.0 percent for the week, +2.7 percent year-to-date

- Nasdaq Composite: -1.6 percent for the week, +1.6 percent year-to-date

- Russell 2000: -0.9 percent for the week, +2.6 percent year-to-date

Treasuries experienced some volatility but ultimately ended the week with modest gains. The 10-year Treasury yield declined six basis points to 4.57 percent, while the 2-year yield fell three basis points to 4.24 percent.

Looking Ahead

The coming week will bring another round of key earnings reports and economic data. Investors will be paying close attention to:

- The latest updates on trade negotiations and whether any of the newly announced tariffs will be modified

- The January employment report, which will provide further insights into labor market conditions

- Additional earnings reports from major companies, which could set the tone for February’s market performance

While the economic backdrop remains solid, the combination of trade tensions and uncertainty in the AI sector suggests that market volatility could remain elevated. Investors will need to carefully assess risks and opportunities as the landscape continues to evolve.