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At a glance

Bond yields saw little change ahead of this week’s Fed meeting, with President Trump setting in motion executive orders on immigration, energy and trade after his inauguration. U.S. equities touched another new all-time high last week, and 48% of S&P 500 companies will release fourth quarter results over the next two weeks.

Number of the week:

48%

The percentage of S&P 500 companies reporting fourth quarter 2024 earnings over the next two weeks.

Term of the week:

Tariff

A tax imposed by one country on the goods and services imported from another country to influence it, raise revenues or protect competitive advantages.

Quote of the week:

The University of Michigan Consumer Sentiment Index fell for the first time in six months in January. Year-ahead inflation expectations remain elevated at 3.3%, the highest since May. Declines in current economic conditions and consumer expectations dampened consumer spirits.

― Robert Haworth, CFA, Senior Vice President, Senior Investment Strategy Director, U.S. Bank

Global economy

Quick take: Global purchasing manager indexes point to solid services activity and stagnant manufacturing activity, despite a slight improvement in the U.S. Consumer sentiment in the U.S. slipped on rising inflation concerns.

Our view: The U.S. economy appears likely to achieve a soft landing in 2025, aided by slowing inflation and solid domestic demand growth. Tariffs pose some risks to slow but improving growth in developed markets, including the eurozone, the United Kingdom and Japan. Emerging markets remain diverse as trade policies take center stage while China struggles to rekindle consumer demand.

  • President Trump’s initial week in office saw no initiation of tariffs, which has concerned the market. Instead, the President directed a variety of cabinet offices to study trade deficits and potential resolutions, including tariffs, by April 1. He also declared a national energy emergency and reversed some regulations on natural resource development in Alaska with a goal to lower energy prices. Additionally, he announced a joint venture pledge, known as Stargate, led by prominent technology investors, including Oracle, SoftBank Group and OpenAI, to invest up to $500 billion to develop artificial intelligence infrastructure in the U.S.
  • S&P Global’s flash U.S. January composite purchasing manager index slipped to a nine-month low at 52.4. The manufacturing index improved to 50.1, indicating growth for the first time in six months. The services index hit its lowest point since April 2024, though at 52.8 still indicates an ongoing expansion. The report noted rising employment and input costs and average selling prices.
  • The University of Michigan Consumer Sentiment Index fell for the first time in six months in January. Year-ahead inflation expectations remain elevated at 3.3%, the highest since May. Declines in current economic conditions and consumer expectations dampened consumer spirits.
  • January flash purchasing manager indexes for major developed economies indicate an ongoing contraction in manufacturing activity while services remain buoyant. Manufacturing indexes for Japan, the eurozone and the United Kingdom all remain in contraction territory, though the eurozone saw some improvement. Services indexes remain in expansion across all three economies. The United Kingdom report indicated some concern as employment slowed.

Equity markets

Quick take: The fourth quarter corporate reporting period is accelerating. Macroeconomic uncertainty remains amid indications of persistent inflation, elevated valuations, muted guidance and looming government policy changes.

Our view: The fundamental backdrop remains supportive of a risk-on (more aggressive) bias. Moderating inflation, stable to lower interest rates and rising earnings are supportive of valuations and advancing equity prices.

  • U.S. equity performance in 2025 is superb and broad-based. The popular broad-based U.S. indices, as of Friday’s close, are up between 3.3% and 4.4% so far in January. All 11 S&P 500 sectors are in positive territory, and six – Communication Services, Energy, Financials, Industrials, Materials and Utilities – are up 5.0% or more. This broad-based strength is typically indicative of underlying economic strength.
  • Fourth quarter results are trending above expectations. As of Friday’s close, 16% of S&P 500 companies have released quarterly results. Sales and earnings are up 4.7% and 16.6%, respectively. Expectations were for sales to advance 4.5% and earnings to increase 11.6% over year-ago levels, according to FactSet. While early indications are positive, a better read on the pace of sales and earnings growth will be gleaned over the next two weeks when 48% of S&P 500 companies report. Visa, Mastercard, Microsoft, Meta Platforms and Apple are among higher-profile companies slated to release results this week.
  • Consumer spending remains resilient; businesses appear more optimistic. “Normalization” is commonly stated when describing underlying consumer trends. Banks are reporting modest loan and deposit growth, stable credit quality, strong capital markets activity, small business optimism and tight expense control. Airlines are noting that spending on travel remains a priority among both leisure and business segments; international and premium seating are areas of strength. Select credit card companies note that the consumer credit outlook remains constructive, despite some pressure on lower-income consumers and those with high debt servicing obligations.
  • Domestic earnings projections for 2025 reflect double-digit year-over-year growth. At present, analysts forecast S&P 500 earnings of approximately $241 per share for full-year 2024 and $272 in 2025, according to Bloomberg, FactSet and S&P Cap IQ, reflecting respective 9.1% and 12.8% year-over-year growth. We anticipate improved visibility on 2025 projections over the next three weeks following the bulk of fourth quarter releases.

Bond markets

Quick take: Yields were largely stable last week, with most bond categories delivering modestly positive returns. Multiple central banks meet this week including the Federal Reserve (Fed).

Our view: Spreading allocations beyond traditional high-quality Treasury and investment-grade corporate and municipal bond exposures can improve income generated on fixed income portfolios. Currently, bonds present opportunities to lock in important portfolio income for multiple years.

  • The Fed is expected to hold interest rates steady at its meeting concluding Wednesday. Healthy economic growth with slightly above-target inflation reduces the Fed’s urgency to deliver additional rate cuts. The Fed has already reduced its short-term funding rate 1% since September 2024. Bond yields reflect two additional 0.25% cuts this year and a 50% chance that the next cut comes in May. This is aligned with Fed Chairman Jerome Powell’s comment that the policy rate is still restrictive. The Fed may also discuss its ongoing effort to reduce its bond holdings, called “quantitative tightening.” The Fed has shrunk the size of its balance sheet since mid-2022. Fed member discussions about quantitative tightening at an upcoming meeting would be the first step toward ending the program. Investors may view this as an encouraging sign for stabilizing Fed bond demand. The complex interplay among Fed rate policy, balance sheet policy and potential fiscal policy changes heightens the importance of managing bond maturities to align with investors’ goals.
  • The European Central Bank, Bank of Canada and Sweden’s Riksbank are all expected to cut rates this week. Economists expect slower growth and inflation than the U.S. in all three markets over the next few quarters. The Bank of Japan (BoJ) is an exception to the global trend toward more accommodative monetary policy, hiking rates 0.25% last week. The BoJ is normalizing policy after many years of a negative policy rate. The hike brought Japan’s rate to 0.5%, still far below most other central bank rates.
  • High yield corporate and municipal bonds continue to deliver steady returns compared to Treasuries. Corporate bond valuations have risen steadily for roughly two years. High yield corporate bonds offer less extra yield over Treasuries than most periods in history, but income opportunities are still abundant considering Treasury yields are elevated and resilient economic growth should help limit defaults. High yield municipal bond valuations are also somewhat elevated, but the tax-free income remains compelling for highly taxed investors.

Real assets

Quick take: Publicly traded real estate investment trusts (REITs) extended their strong start to 2025 last week, gaining 1%. The rally in commodity prices paused despite gold nearing all-time highs.

Our view: Real estate exposure can provide steady income for portfolios while benefiting from stable economic conditions with healthy growth and moderate inflation. Elevated office property delinquencies suggest that category continues to struggle, but larger REIT segments like industrial properties exhibit favorable fundamentals.

  • Heavy exposures to industrial and health care properties benefited U.S. REITs last week. Industrial and health care REITs each account for roughly 12% of publicly traded real estate. Both categories delivered strong gains last week, with industrial REITs returning 7% and health care REITs returning 3%. Prologis, the largest REIT, reported fourth quarter results, beating expectations for both sales and earnings, and analysts raising price targets on Welltower benefited the health care REIT segment. We expect the strong results with company guidance for healthy fundamentals to continue in 2025, with high occupancy rates fueling gains across the industrial REIT category. While elevated financing costs for property owners with Treasury yields near 2024 highs pose a headwind, most property types still exhibit strong fundamentals.
  • Commodities ended last week down slightly, with oil losses offsetting gold gains. Oil prices fell almost 4% last week as President Trump called on the Organization of Petroleum Exporting Countries (OPEC) to reduce oil prices. The group of 12 countries influences global oil prices by setting supply targets for each member. Gains on precious metals helped buffer losses from oil. Gold exposures returned around 2.6% and silver returned 1%.
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Based on our strategic approach to creating diversified portfolios, guidelines are in place concerning the construction of portfolios and how investments should be allocated to specific asset classes based on client goals, objectives and tolerance for risk. Not all recommended asset classes will be suitable for every portfolio. Diversification and asset allocation do not guarantee returns or protect against losses.

Past performance is no guarantee of future results. All performance data, while obtained from sources deemed to be reliable, are not guaranteed for accuracy. Indexes shown are unmanaged and are not available for direct investment. The S&P 500 Index consists of 500 widely traded stocks that are considered to represent the performance of the U.S. stock market in general. The Consumer Price Index is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. It is one of the most frequently used statistics for identifying periods of inflation or deflation. The S&P Global Purchasing Managers' Index data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies. The Michigan Consumer Sentiment Index is a monthly survey of consumer confidence levels in the United States conducted by the University of Michigan. The survey is based on telephone interviews that gather information on consumer expectations for the economy.

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This information represents the opinion of U.S. Bank Wealth Management. The views are subject to change at any time based on market or other conditions and are current as of the date indicated on the materials. This is not intended to be a forecast of future events or guarantee of future results. It is not intended to provide specific advice or to be construed as an offering of securities or recommendation to invest. Not for use as a primary basis of investment decisions. Not to be construed to meet the needs of any particular investor. Not a representation or solicitation or an offer to sell/buy any security. Investors should consult with their investment professional for advice concerning their particular situation. The factual information provided has been obtained from sources believed to be reliable but is not guaranteed as to accuracy or completeness. U.S. Bank is not affiliated or associated with any organizations mentioned.

Based on our strategic approach to creating diversified portfolios, guidelines are in place concerning the construction of portfolios and how investments should be allocated to specific asset classes based on client goals, objectives and tolerance for risk. Not all recommended asset classes will be suitable for every portfolio.

Diversification and asset allocation do not guarantee returns or protect against losses.

Past performance is no guarantee of future results. All performance data, while obtained from sources deemed to be reliable, are not guaranteed for accuracy.

Equity securities are subject to stock market fluctuations that occur in response to economic and business developments.

International investing involves special risks, including foreign taxation, currency risks, risks associated with possible differences in financial standards and other risks associated with future political and economic developments. 

Investing in emerging markets may involve greater risks than investing in more developed countries. In addition, concentration of investments in a single region may result in greater volatility.

Investments in fixed income securities are subject to various risks, including changes in interest rates, credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors. Investment in fixed income securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term securities. Investments in lower-rated and non-rated securities present a greater risk of loss to principal and interest than higher-rated securities.

Investments in high yield bonds offer the potential for high current income and attractive total return, but involve certain risks. Changes in economic conditions or other circumstances may adversely affect a bond issuer’s ability to make principal and interest payments.

The municipal bond market is volatile and can be significantly affected by adverse tax, legislative or political changes and the financial condition of the issues of municipal securities. Interest rate increases can cause the price of a bond to decrease. Income on municipal bonds is free from federal taxes, but may be subject to the federal alternative minimum tax (AMT), state and local taxes.

There are special risks associated with investments in real assets such as commodities and real estate securities. For commodities, risks may include market price fluctuations, regulatory changes, interest rate changes, credit risk, economic changes and the impact of adverse political or financial factors. Investments in real estate securities can be subject to fluctuations in the value of the underlying properties, the effect of economic conditions on real estate values, changes in interest rates and risks related to renting properties (such as rental defaults).

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The information provided represents the opinion of U.S. Bank and is not intended to be a forecast of future events or guarantee of future results. It is not intended to provide specific investment advice and should not be construed as an offering of securities or recommendation to invest. Not for use as a primary basis of investment decisions. Not to be construed to meet the needs of any particular investor. Not a representation or solicitation or an offer to sell/buy any security. Investors should consult with their investment professional for advice concerning their particular situation.

U.S. Bank and its representatives do not provide tax or legal advice. Your tax and financial situation is unique. You should consult your tax and/or legal advisor for advice and information concerning your particular situation.