Daily Market Recap – Friday Feb 7, 2025

Market Recap & Economic Data

U.S. equities ended the week lower, with the S&P 500 down 0.95%, the Dow Jones falling 0.99%, and the Nasdaq declining 1.36%. The market reacted negatively to January's nonfarm payrolls report, which showed 143K job additions — below the expected 170K — though December and November saw upward revisions totaling 100K. The unemployment rate ticked down to 4.0% from 4.1%, but average hourly earnings rose 0.5% month-over-month, surpassing the 0.3% forecast, pushing annualized wage growth to 4.1%. The University of Michigan's February consumer sentiment index fell sharply to 67.8 from 71.1 in January, with inflation expectations rising to 4.3% for the next year. Market expectations for a March rate cut softened, with June still seen as the likely timing for the Fed’s first move.

Corporate Earnings & Sector Moves

Amazon's Q4 results showed strong operating income and margins, but weaker-than-expected guidance led to a 4.1% stock decline. FX headwinds and a leap-year impact contributed to lower projections, though Amazon’s AI and AWS businesses remain on a strong trajectory. Pinterest surged 19% on record revenue and rising user growth, while E.l.f. Beauty plunged over 25% after cutting its fiscal outlook due to weak January sales. The AI investment cycle remains strong, with Alphabet and Amazon collectively guiding for over $175B in capex this year.

Policy & Trade Developments

President Trump hinted at upcoming reciprocal tariffs, particularly targeting automobiles, though the EU may propose lowering tariffs on U.S. car imports to avoid escalation. While the administration emphasized a focus on lowering 10-year Treasury yields via fiscal measures rather than Federal Reserve action, trade uncertainty continues to cloud sentiment. Meanwhile, tax policy remains uncertain, with internal GOP disagreements on strategy, including discussions around temporary tax cuts instead of permanent changes.

Market Flows & Retail Participation

Retail investors have shown heightened buying activity, with demand for tech stocks like Nvidia, Tesla, and Alphabet surging. JPMorgan's retail sentiment score hit a record high of 4, surpassing levels seen during the 2021 meme stock frenzy. Flow data indicates approximately $75B in U.S. equity inflows in January, driven in part by 401(k) and 529 contributions.

Investment Takeaways

The macroeconomic backdrop remains mixed, with slowing job growth but persistent wage inflation, which could delay Fed rate cuts. The recent pullback in equities suggests a more selective market environment, where companies with strong earnings resilience — particularly in AI, cloud, and consumer discretionary — could outperform. Amazon’s near-term weakness on FX and guidance may present a buying opportunity given its AI-driven growth. Retail trading enthusiasm is high, but investors should monitor the sustainability of this trend. Overall, while downside risks remain from policy uncertainty and inflation concerns, select high-quality growth stocks could continue to attract capital in the current environment.