Trump Takes Charge – by Justin Vaughn

(Justin Vaughn, Editor, Options Trading Report)

All three indexes finished last week with gains. The Benchmark S&P 500 logged up 1.7% for the week–the first record finish this year, while the heavy-tech Nasdaq Composite added 1.7% also. The Dow Jones Jones Industrial Average led all indexes with a nice weekly gain of 2.2%. Investors and traders are mostly positive and optimistic about President Trump’s second crack at occupying the White House. With an economy that is cruising along, and unemployment steady at 4.1% (according to the recent jobs report), and inflation that is easing, President Trump can now steer the nation, finetunning policies and strengthening America.

Monday’s market suffered as the Nasdaq and its high techs, chips, and AI stocks were hit ‘hard.’ Nvidia stock dropped 17%, losing over $560 billion in value, a record one day loss-the biggest in the history of the market. “The ‘new-guy’ on the street (deepseek V2) could threaten to re-write the building of Artificial Intelligence. This is kind of classic in our industry,” said Salesforce Chief Executive Marc Benioff. “The pioneers are not the ones who end up being the victors.” The Chinese government unveiled a new company, “deepseek V2” aimed at competing with the leading U.S. chip maker Nvidia, with a product that is less than half the cost, has more capacity, longer life, and potentially more profitable. According to Chinese officials, they are willing to share this innovative technology worldwide. All companies involved in AI and AI research can now use deepseek’s results in any way they choose. Some U.S. Government officials have accused China of using Nvidia chips and their data as the cornerstone of the ‘deepseek’ development. The Dow Jones was the recipient on Monday as capital drained from the technology sector…as heavy capital flowed to safer value stocks, and ditching high techs and AI stocks was the ‘mood’ of the day.

Stocks slipped Wednesday heavily affected by Mr. Powell and the Fed’s thoughts of slowing or halting institutions of interest rate cuts. All three indexes reacted, unsteady and falling just below flatline. As expected, government bond yields edged up with the 10-year Treasury yield creeping up to 4.554%, after closing Tuesday 4.548%, with the two-year resting at 4.226%, up a slight bit from Tuesday’s close of 4.204% according to TradeWed. Thursday’s market opened sluggish as investors were in anticipation of some larger corporation earnings releases. The Bureau of Economic Analysis released the GDP (Gross Domestic Product) data that indicated that the economy is slowing in the fourth quarter, although with labor strong and unemployment holding low, the GDP number is still very positive.

Housing Marker Update …. As fresh data reveals, new and existing home sales have dropped to their lowest level since …1995, the culprit is sky high mortgage rates, continuing to hover just over 7%, showing no signs of regressing. Higher insurance costs, higher taxes nationwide and much less inventory, as sellers are comfortable with locked-in rates and in many cases are grandfathered-in on taxes. “The starting point for 2025 is you’re kind of already starting in a spot with not that much momentum,” said Rick Palacios Jr., director of research at John Burns Research & Consulting. “I don’t really see how that thesis reverses and gets more optimistic as long as mortgage rates stay at 7%.” The average existing home price in December was $404,400, down from a record high in June 2024 of $426,900. As the real estate market has ‘twisted and turned’ home buyers are “waiting the market out.”

RUMBLINGS ON THE STREET

Liz Ann Sonders, chief investment strategist at Charles Schab, WSJ – We’re back in inverse correlation–when bond yields go up, stock prices go down.”

Jeremy Wacksman, chief Executive Officer Willow Group, WSJ – “Not to over simplify, but you really can boil the housing affordability crisis. Getting more homes available is going to be ultimately what starts to uptick the housing market.”

Irene Tunkel, chief U.S. Equity Strategist at BCA Research, WSJ – “There’s some days when we get a little bit of skepticism about generative AI, other days we’re excited about. But it still is a very strong force that drives the market forward.”

Laing Wenfeng, Engineer and hedge-fund manager, and leader of the development of ‘DeepSeek V2’ WSJ – “When humans make investment decisions, it’s an art, and they just do it by the seat of their pants. When computer programs make such decisions, it’s a science, and it has the optimal solution.”