WEEKLY MARKET SUMMARY
Global Equities: It was a holiday-shortened yet eventful week for the stock market, as President Trump’s quick reversal on tariff threats led to heightened volatility. The S&P 500 had its second straight losing week, ending -0.3% lower, while the Nasdaq Composite was relatively unchanged at -0.1% and the Dow Jones Industrial Average fell -0.5%. US small cap stocks slipped under pressure from rising interest rates, ending the week -0.4% lower. Overseas markets fared better, with developed market stocks gaining 0.4% and emerging markets advancing 2.1%.
Fixed Income: The 10-Year Treasury yield surged early in the week as President Trump threatened new tariffs on European nations in his pursuit of Greenland, nearly reaching 4.3%. Yields fell back to relatively unchanged at 4.23%, however, after Trump rescinded his threats. Corporate bond issuance remained robust, with investment-grade debt offerings on pace for an all-time monthly high, driven largely by AI hyperscalers seeking to fund further expansion.
Commodities: US West Texas Intermediate Crude prices ended the week with a modest gain, closing around $61.10 a barrel. Rumblings of possible US military action in Iran contributed to the price increase. Natural gas prices experienced a historic surge, with February futures prices rising 70% in advance of a severe winter storm expected to hit a significant portion of the US. Precious metals continued to outperform, with gold prices now within striking distance of a historic $5,000/oz at $4,983, and silver eclipsing $100/oz for the first time ever.
WEEKLY ECONOMIC SUMMARY
Inflation Remains Above Target: The Fed’s inflation indicator, the Core Personal Consumption Expenditure (PCE) Price Index, showed prices growing at a rate that is stable but still well above the Fed’s 2% target. PCE clocked in at 2.8% in November for both the headline and Core (ex-food and energy) measures. The data showed consumers are spending more, but not on luxuries. Medical care and insurance costs are eating up a larger portion of consumer budgets, pushing the personal savings rate to 3.5%. Despite the persistent inflation, the Fed is unlikely to act on interest rates, as jobs data has shown signs of improvement and GDP remains robust.
Return of the TACO Trade: President Trump preceded his arrival at the World Economic Forum in Davos, Switzerland with aggressive rhetoric towards European nations opposed to his efforts to acquire Greenland, hinting at the use of force and threatening tariffs on nations opposing him. Yet soon after, Trump took the stage at Davos and ruled out any military action to acquire the Arctic island and later stating he had the “framework of a future deal”, thereby dropping the tariff threat. The abrupt change of heart brought back talk of the “Trump Always Chickens Out” (TACO) trade thesis. Trump pointed to stock market performance (confusing Greenland for Iceland) during his speech which he commented, “Our stock market took the first dip yesterday because of Iceland. So, Iceland’s already cost us a lot of money.” The comments highlight the focus of the Trump administration on keeping the market rally going above all else with midterm elections at stake this year.
Earnings Update: It was a mixed bag of earnings news, with Intel (INTC) shares plunging 17% after a soft outlook for the current quarter overshadowed solid results. Weak guidance also took its toll on Netflix (NFLX), sending shares 5% lower. The coming week is the big event for Q4 2025 earnings season, with Microsoft (MSFT), Apple (AAPL), Nvidia (NVDA), and Meta (META) all reporting results.
CHART OF THE WEEK
The Chart of the Week shows the Atlanta Fed’s GDPNow model estimate for real GDP growth in the fourth quarter 2025, which has risen to 5.4% from around 3% just a few weeks ago. It is important to note that the GDPNow model is a “nowcast” and is subject to revisions as real-time data becomes available, rather than a forecasting tool. Nevertheless, the data shows that the US economy is running hot, reducing the prospects for a rate cut in the first half of the year.
