Preview — Barron's

Investor Sentiment Readings

High bullish readings in the Consensus stock index or in the Market Vane stock index usually are signs of Market tops; low ones, market bottoms.

 
                              Last Week  2 Weeks Ago  3 Weeks Ago 
Consensus Index 
Consensus Bullish Sentiment   61%        58%          63% 
AAII Index 
Bullish                       43.4%      25.4%        34.7% 
Bearish                       29.4       40.6         37.4 
Neutral                       27.1       34.0         28.0 
Market Vane 
Bullish Consensus             70%        67%          69% 
TIM Group Market Sentiment 
Indicator                     49.0%      51.8%        46.2% 
Sources: Consensus Inc.; American Association of 
Individual Investors; Market Vane; TIM Group 
 
 

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By Ian Salisbury

With uncertainty over interest rates and stock valuations, 2025 could be the year of the market's forgotten middle child: mid-cap stocks. While mid-caps don't get much attention, the sector — companies with market values between $2 billion and $10 billion — may be in the sweet spot.

The large-cap S&P 500 index trades at nearly 22 times 2025 earnings, near a 20-year high; the iShares Core S&P Mid-Cap exchange-traded fund at 16 times. Analysts forecast 13% 2025 earnings-per-share growth for the ETF to the S&P 500's 14%. It's "mid-cap's time to shine," wrote BofA Securities recently, noting that mid-caps, with comparatively strong balance sheets, should weather rising rates better than alternatives like small-caps.

J.P. Morgan saw President Trump's tariffs lifting domestically focused companies, advantaging small- and mid-cap stocks relative to multinationals. One stock highlighted by J.P. Morgan is fruit company Dole, which trades at nine times 2025 earnings and, FactSet says, should grow earnings by some 15% this year. JPM cites the stock's 12% free-cash-flow yield and "rapidly deleveraging balance sheet."

Timothy Schwartz, co-manager of the Schwartz Value Focused fund — Morningstar's top mid-cap blend fund in 2024, with a 39% return — likes mid-cap outdoor-products maker Yeti Holdings, which had a big run after going public in 2018, then struggled. At 13 times 2025 earnings, it's "overlooked by the market," he says.

Write to Ian Salisbury at ian.salisbury@barrons.com

Last Week

Markets

The Trump inauguration moved inside the Capitol with Washington gripped by cold. A ceasefire began in Gaza, with the first hostage and prisoner exchanges. President Trump, who the weekend before launched his own meme coin (followed by the first lady) that sent crypto falling, signed executive orders, including a 75-day TikTok reprieve, tariff threats, pardons for Jan. 6 participants, ending AI regulation, demanding lower prices, and sending troops to the Mexican border. The dollar fell, then rebounded. Markets rose after the MLK break. The S&P 500 hit its first record high of 2025 on Thursday; shares fell on Friday. On the week, the Dow industrials rose 2.2%, and the S&P 500 and Nasdaq Composite gained 1.7%.

Companies

Apple fourth-quarter iPhone sales fell 18% in China. Trump presided over the announcement of a $500 billion AI infrastructure venture led by OpenAI, SoftBank Group, Oracle, and UAE-based MGX called Stargate; Elon Musk scoffed at the plan. The Financial Times reported that TikTok parent ByteDance would spend $12 billion on AI infrastructure this year. Moderna received $590 million in federal funds to develop a bird-flu vaccine. Netflix added 19 million subscribers in the fourth quarter.

Deals

Saudi Arabia's investment mining fund is set to buy 10% to 20% of Barrick Gold's $9 billion Pakistan copper-gold mine Reko Diq, from the Pakistani government....Italian bank Monte dei Paschi made a $13.9 billion offer for rival Mediobanca.

Next Week

Monday 1/27

A crowded earnings calendar is headlined by Big Tech reporting midweek. AT&T announces quarterly results on Monday, followed by General Motors, Lockheed Martin, RTX, and Starbucks on Tuesday. ASML Holding, Meta Platforms, Microsoft, and Tesla release earnings on Wednesday, while Apple, Caterpillar, Mastercard, and Visa follow suit on Thursday. AbbVie, Chevron, Exxon Mobil, and Novartis close out the week on Friday.

Wednesday 1/29

The Federal Open Market Committee announces its monetary-policy decision. The FOMC is widely expected to keep the federal-funds rate unchanged at 4.25% to 4.5%. With the economy and labor market still resilient, and inflation stubbornly above the Federal Reserve's 2% target, the central bank is in wait-and-see mode as it assesses incoming economic data.

Friday 1/31

The Bureau of Economic Analysis releases the personal consumption expenditures price index for December. Economists forecast a 2.5% year-over-increase, one-tenth of a percentage point more than in November. The core PCE index, which excludes volatile food and energy prices, is expected to rise 2.8%, matching the November figure.

The Numbers

$1.5 T

Global net inflows of exchange-traded funds in 2024, beating the previous high in 2021 of $1.2 trillion.

$4.15

The average retail price of a dozen large eggs in December, up 14% from November, 37% for the year.

$30 B

Redemptions made from climate-focused mutual funds last year, ending four years of increases.

$1.8 T

Amount of fees hedge funds charged investors since the industry began, 49% of total gains.

Write to Robert Teitelman at bob.teitelman@dowjones.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

U.S. Homes Sales in 2024 Fell to Lowest Level in Nearly 30 Years

Higher mortgages rates and record home prices kept sales subdued for the second straight year.

Stock Investors Like Trump 2.0

Major indexes around the globe moved higher during President Trump's first week in office.

The Score: Novo Nordisk, Oracle, Netflix, and More Stocks That Defined the Week

Here are some of the major companies whose stocks moved on the week's news.

U.S. Activity Loses Pace at Start of Year

U.S. economic activity expanded at a slower pace at the start of the year, pressured by the services sector, despite signs of recovery in manufacturing.

Europe's Cautious Rebound Overshadowed by Trump Tariffs

The eurozone economy likely started the year less weakly than it ended 2024, according to business surveys, but the threat of higher U.S. tariffs still tempers hopes that lower borrowing costs will help fuel a pickup as the year advances.

Asia Sees Trump in a Surprising Way-as a Steady Pair of Hands

Bank of Japan goes through with planned rate increase, saying president is acting within expectations.

Europe Pushes for Sweeping Regulatory Reform to Compete With U.S., China

The move comes as the head of the European Central Bank suggested that Americans disaffected with the Trump administration should come to Europe.

How United and Delta Are Disproving Buffett's 'Bottomless Pit' Theory

Legacy carriers are leading an impressive rally in airline stocks, but their success will depend on becoming winners-take-all.

Investors Bet Trump Will Make Europe Investable Again

The big hope is that Europe will move faster to implement reforms in the face of competitive threats from the U.S.

Week Ahead for FX, Bonds: Fed, ECB Decisions in Focus

After a week of focus on U.S. politics following President Trump's inauguration, focus switches back to monetary policy, with an interest-rate decision due by the Fed as well as the ECB.

                                  High        Low      Close     Change 
                                  ----        ---      -----     ------ 
  S&P SmallCap 600 Index      1,461.71   1,451.07   1,455.30      -2.96 
  S&P MidCap 400 Index        3,284.80   3,267.24   3,275.64      -2.78 
  S&P 100 Index               2,997.65   2,973.45   2,980.92      -8.94 
  S&P 500 Index               6,128.18   6,088.74   6,101.24     -17.47 
 
 
Source: FactSet 
 

The WSJ Dollar Index is down 1.53 points or 1.48% this week to 101.80

• Largest one-week point decline since the week ending Nov. 17, 2023
• Largest one-week percentage decline since the week ending Aug. 23, 2024
• Down for two consecutive weeks
• Down 1.81 points or 1.75% over the last two weeks
• Largest two-week point and percentage decline since the week ending Aug. 23, 2024
• Today it is down 0.54 point or 0.52%
• Largest one-day point and percentage decline since Monday, Jan. 20, 2025
• Down for two consecutive trading days
• Down 0.65 point or 0.63% over the last two trading days
• Largest two-day point and percentage decline since Tuesday, Jan. 21, 2025
• Down eight of the past 10 trading days
• Off 3.18% from its record close of 105.14 hit Tuesday, Sept. 27, 2022
• Lowest closing value since Tuesday, Dec. 17, 2024
• Off 1.75% from its 52-week high of 103.61 hit Friday, Jan 10, 2025
• Up 6.81% from its 52-week low of 95.31 hit Friday, Sept. 27, 2024
• Rose 3.93% from 52 weeks ago
• Month-to-date it is down 0.93%
• Year-to-date it is down 0.96 point or 0.93%

Data based on 5 p.m. ET values

Source: Tullett Prebon and Dow Jones Market Data

By Ben Levisohn

Sometimes the planets quite literally align. For investors, this isn't one of those times — but it might just work out OK anyway.

If you looked up into the night sky this past week, you might have seen a " planetary parade" as Venus, Saturn, Jupiter, Mars, Uranus, and Neptune lined up in a way that isn't uncommon, but also not pedestrian. It's the kind of sight that inspired ancient civilizations like the Babylonians and Mayans to seek omens about the future, both good and bad. Today, it's a phenomenon that might open our eyes to the wonders of the universe, if only for a fleeting moment.

If only the drivers of the financial markets were in similar sync. In the best of times, the government, monetary policy, and the economy pull in the same direction, helping corporate profits rise and stock valuations increase. This isn't one of those times. The economy, though strong, still has an inflation problem, one that has forced the Federal Reserve to back away from what promised to be a steady series of rate cuts in 2025. The reelection of Donald Trump has introduced an element of chaos that has the potential to shake markets or lift them higher.

The stock market, then, is left not to climb the proverbial wall of worry but to navigate a swamp of uncertainty. How Trump decides to attack taxes, tariffs, the national debt, and immigration will result in wilder gyrations than we've been used to during the past couple of years. "Expect increased noise and volatility surrounding the incoming administration's new policies, but these are the four main areas whereby those policies could impact the markets and the economy," writes Sevens Report's Tom Essaye.

Market volatility is often a reflection of what investors think they know. When the path ahead looks relatively certain, investors get comfortable — some would even say complacent — and don't feel the need to make big changes to their positions. But when something unexpected happens, it results in a mad dash to reflect the new information in trades and portfolios. Too many scares, and volatility rises. Between the economy, inflation, and the Fed, investors are already dealing with plenty of known unknowns. Making sense of it all will be complicated with a wild card like Trump in the mix. "Anyone not plugged directly into the new administration will have difficulty assessing the macro outlook, because policy shocks are likely to be dominant here," writes Gerard MacDonell, an economist at 22V Research.

Investors got a taste of Trump's potential impact on the market this past week — when he did the unexpected. On Tuesday, for instance, stocks soared after the president refrained from placing tariffs on China, Mexico, Canada, and other U.S. trading partners or deporting millions of immigrants during his first day on the job. Tech shares got a big boost on Wednesday, when Trump touted Stargate, a $500 billion joint venture between Oracle, SoftBank Group, and OpenAI to build AI infrastructure across the country.

By Thursday, he was helping boost Bitcoin with talk of a national reserve and accusing Bank of America CEO Brian Moynihan of "debanking" conservatives. ( Its shares rose 1.3%.)

He also caused oil prices to sink after saying he would press OPEC to let them fall to hasten the end of the war in Ukraine, even as the S&P 500 index rose to a new all-time high. "The intraday swings in oil (lower) and stocks (higher) underscore market volatility accompanying Trump v2.0 as the president rolls out policy and riffs on all things Econ, Political, and Markets," writes Evercore ISI strategist Julian Emanuel.

If those moves and comments were an amuse-bouche, then the main course is still to come. They range from proposed tariffs of 10% on Mexico and Canada that could arrive as early as Feb. 1 to a crackdown on illegal immigrants that has just begun. Some of Trump's goals, like the promise to lower corporate tax rates to 15%, depend on congressional approval — and that approval doesn't seem like a sure thing, given the deficit hawks in the Republican party and disagreements over strategy. If the moves don't materialize, expect the market to be very, very disappointed.

While Trump's policies create land mines for investors to dodge, they also have the potential to act as fuel for the stock market's rally. The market should get a lift from Trump's artificial-intelligence policies, writes John Higgins, chief markets economist at Capital Economics. While the efficacy of Stargate remains to be seen, there is little doubt that Trump intends to ensure the U.S. remains the leader in AI.

That will be good news for Big Tech, whose earnings should continue to get a lift from AI spending, but also for a market on the whole as nontech companies begin to see the benefits the new technologies provide, something that could lift the entire S&P 500. "Trump's attitude toward AI reinforces our view, and we are sticking to our forecast that the index will end 2025 at 7000," Higgins writes.

It won't be a straight line, however. Over the past five weeks, investors got a preview of what the stock market could look like under Trump. Two weeks ago, the mood was bleak. Economic data was coming in too hot, investors were worrying that inflation was about to roar back to life, and the Fed suggested that it might have reached the end of its rate-cutting cycle. Trump had yet to take office, and his promised tariffs and deportations had the potential to shake investor confidence. With the market priced to perfection, the S&P 500 dropped 4% from Dec. 18 through Jan. 10.

What a difference two weeks makes. The economy remains strong — it's expected to have grown at a 3% clip in the fourth quarter, according to the Atlanta Fed's GDPNow tool — but December's consumer price index contained nothing to suggest that inflation was set to reaccelerate. Fed Chair Jerome Powell seems unlikely to disrupt a good situation when the central bank meets on Jan. 28-29. Fourth-quarter earnings season has also started off strong, with companies beating estimates by an average of 8.7% through Thursday. No wonder the S&P 500 gained 1.7% this past week after closing at a record high on Thursday.

The shift in mood from optimism to misery and back again was abrupt. SentimenTrader's Jason Goepfert noted that the ratio of bullish respondents in the American Association of Individual Investors survey plunged below 40% for the week ended Jan. 15, only the second time that has occurred since May 2023. The S&P 500 has been higher 72% of the time in the six months following such declines and 79% of the time in 12 months later, according to SentimenTrader data. Investors were feeling much better in the survey released on Jan. 23 — the percentage of bullish investors rose to 43.4% from 25.4%.

But even quick recoveries in optimism have typically been followed by stock market rallies. Compare the change in the Cboe Volatility index, or VIX — which reflects how wild the next 30 days of trading are expected to be — to historical volatility, or the size of the swings of the previous 30 days. On Dec. 18, the day the Fed hinted at the possible end of rate cuts, the VIX surged to 27.6 from 15.9. By Jan. 17, it had fallen to 16. Over the same period, realized volatility ticked up just a few points.

That kind of drop in the VIX relative to actual volatility doesn't happen very often, but when it does, it has historically been good news for the stock market. The S&P 500 has gained a median of 3.8% over the following three months, 7.2% over six months, and 13.5% over 12 months after similar events since 1990.

In other words, the odds favor the bulls.

Don't be surprised if the wild mood swings continue. In this kind of environment, investors should continue to favor the companies that benefit from policy goals that are unlikely to change.

Trump's deregulatory push could see the industries that operate under the tightest restrictions get a boost — and it doesn't need approval from Congress. Manufacturing, which has seen productivity decline since the financial crisis, could also get a boost if it starts to close the gap with the services economy, according to Société Générale's Manish Kabra. He also recommends regional banks — the "risker the better" — and small-cap stocks, whose size makes regulations feel particularly onerous.

Trump's energy push might not be great news for oil explorers — it could boost supply and lower prices — but it will be great news for companies that benefit from increased spending on production, Kabra writes. For retail investors, that could mean favoring the VanEck Oil Services exchange-traded fund over the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).

The Stargate announcement is a signal that the AI trade should continue to pay off. Investors have been worrying companies will start spending less on AI infrastructure, but the announcement should be seen as a sign that demand is very much alive and well. Nvidia should be a big beneficiary, says Melius analyst Ben Reitzes. He notes that, on the high side, Nvidia could receive more than half of the $100 billion to be spent during the first year of the program. He also argues that Broadcom and Arista Networks should get a boost from the spending on networking, while Oracle could benefit as well.

"We certainly don't have this kind of spending for capex, nor have this kind of cloud revenue in our current model for buy-rated Oracle, who is a big beneficiary," Reitzes writes. Oracle stock gained 14% this past week.

In a volatile world, gold also looks like a good bet. The precious metal has gotten a boost from central-bank buying as countries, particularly those with adversarial relationships with the U.S., look to expand their reserves out of the dollar. But gold also benefits from a lack of fiscal discipline in the U.S. and elsewhere.

While the U.S. deficit hasn't been an issue yet, the continued expansion of debt-to-gross domestic product should be another tailwind. Macro Intelligence 2 Partners also notes that gold's recent slumber — it has dipped 0.2% since peaking on Oct. 30 — likely caused investors to sell in favor of other assets. "With the price starting to show signs of life again...if these sellers want their positions back, they are going to have to chase the price," the firm writes.

Maybe the planets have aligned after all.

Write to Ben Levisohn at Ben.Levisohn@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.