Markets Under Pressure, Shutdown Odds Grow, Oh, Canada!
We've got a big week ahead as we digest a big weekend's headlines, so let's unpack the news, chart the market and get ready.
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Equity index futures opened in the hole on Sunday night. Again? Is this pressure-packed Monday (Well, last week was actually Tuesday) all over again? Well, in a way. As most of the country digs out from under an epic winter storm, financial markets will open as usual. Why? Because heck... they just don't need humans anymore. It matters not. Did your commuter train run this morning? Was it on time? Did the bus ever show?
No worries, stockbrokers, and registered reps... high-speed, high-frequency, keyword-reading algorithms have got it from here. Forever. Enjoy your forced price overshoot. Enjoy your forced inefficiency at the point of sale. All in the name of speed (and pulling order flow away from publicly visible markets and into dark pools, nothing unethical about that). Price discovery? Never heard of it. Don't you know there's money to be made? The green stuff, baby. Grandma will happily pay a little more if we just tell her that she's saving money. Remember when we were really fiduciaries? So long ago.
On Saturday, Pres. Trump said he would impose 100% tariffs on Canadian exports to the U.S. if that nation went through with a trade agreement with China. According to Reuters, the president also warned the Canadian Prime Minister that such a deal would endanger his country. This came after Prime Minister Mark Carney spoke at Davos, Switzerland last week and warned against economic coercion by global superpowers.
In response to that speech, Pres. Trump was quoted saying, "Canada lives because of the United States. Remember that, Mark, the next time you make your statements." Canada was subsequently uninvited from the president's "Board of Peace." Hence, similar to last weekend, the threat of increased tariffs put pressure on financial markets on Sunday night, largely because human traders fully understand how this president negotiates, and keyword-reading algorithms react to headlines and then try to force momentum.
Just as happened last week, when Europe buckled in face of a threatened increase in tariffs, Canadian Prime Minister Mark Carney "clarified" his country's position and said that Canada had "no intention" of pursuing any kind of a free-trade agreement with China. On Sunday, the prime minister reiterated that Canada respects its obligations under the USMCA deal with the U.S. and Mexico and would notify those two nations before amending any existing agreements. One would think that the threat of any new 100% tariff on Canadian goods would now be significantly diminished.
There's More...
So, what's pressuring markets now? The chances for another government shutdown grew sharply over the weekend as Senate Democrats vowed to block a $1.2 trillion funding package that would include appropriations for the Department of Homeland Security. The spending bill needs 60 votes to be considered "filibuster-proof" and the Republicans hold just a 53-47 advantage in our legislature's upper body.
The division in the Senate intensified after the questionable death of an armed U.S. citizen at the hands of U.S. Customs and Border Protection officers Minneapolis on Saturday galvanized opposition to the bill from the left. According to prediction markets, over the weekend, the probability for a U.S. federal government shutdown by the end of this month popped from 11.5% to 79% at Kalshi and from 9% to 80% at Polymarket. Traders and Investors want to remain steady handed, clear-minded, calm and clear-eyed as the opening bell approaches.
Crystal Eyes
Crystal Eyes, she's an angel
That fell to earth like a gift from God
Sweet, serene, skin like cream
My love protects your every thought
- Gunns, Riley, Nickels, Cripps, Lewis (LA Guns), 1992
Your General Orders...
We've gone through this before. Never hurts to remind those at a loss or who are prone to panic. You don't need to be afraid. You have me. This is how we proceed...
- Understand... Everything is done for a reason that can be explained. Deliberate movement in stressful situations reduces the possibility for error.
- Identify... Areas of weakness, perceived threats, and targets of opportunity.
- Adapt... To all changing environments. Become what is required when and where it is required. This is how you'll defend those you love
-Overcome... Find a way. In the face of even persistent failure, find within thyself consistent resilience. You've got guts. That I know, or you would not be here.
- Carry On... No victory. No defeat. Continue with your mission. Slow is smooth. Smooth is fast.
The Week That Was...
The major U.S. equity indexes closed modestly for the holiday shortened week on Friday despite posting minor gains on Friday. Small to mid-cap stocks largely underperformed the broader market place on Friday, reversing recent trends and allowing large caps to catch up just a bit. The week started out with a deep bout of negative volatility as markets reacted to Pres. Trump's comments in regard to Greenland and his threats of increased tariffs against eight NATO allies.
Markets spent the next three days regaining most of that lost ground as the president, from Davos, Switzerland ruled out the use of military force to gain control over Greenland and a framework deal appeared to have been agreed upon that would most likely grant military control over and mineral rights in Greenland to the US, allowing the president to withdraw the already mentioned threat of tariffs against those European nations.
Gold extended its rally, rising above $5,000 per ounce as silver traded above $100 per ounce. Earnings releases dominated the corporate landscape ahead of a much higher profile week ahead. Most notably, Intel (INTC) suffered a beatdown of 17% on Friday after readers of this column were warned to reduce exposure in the stock on Thursday morning.
Amid all of that news flow, this is how equity markets performed over the past week...
- The S&P 500 gained just 0.03% on Friday to lose just 0.35% for the week.
- The Nasdaq Composite gained 0.28% on Friday but lost just 0.06% for the week.
- The Nasdaq 100 added 0.34% on Friday and 0.3% on the week.
- The Russell 2000 surrendered 1.82% on Friday and 0.32% for the week.
- The S&P Small Cap 600 gave up 1.79% on Friday and 0.4% for the week.
- The S&P Midcap 400 lost an even 1% on Friday and 0.55% over the week.
- The Dow Transports surrendered 1.4% on Friday and 0.25% for the week.
- The Philly Semis gave back 1.21% on Friday but added 0.38% for the week.
- The KBW Bank Index lost a stunning 2.23% on Friday and a nasty 2.09% for the week.
On Friday, seven of the 11 S&P sector SPDR ETFs closed out the session in the green, led by the materials (XLB) and followed by the staples (XLP) and communication services (XLC) . The financials (XLF) placed last for the session.
For the week, six of the 11 S&P sector SPDR ETFs traded higher, with energy (XLE) and the materials way out in front as the cyclicals took charge. That said, the financials finished last for the week as well as for the day on Friday in the wake of Pres. Trump's $5 billion lawsuit against JP Morgan Chase (JPM) and its CEO, Jamie Dimon.
The Chart
Readers will see that early last week, the S&P 500 tried to break down from a rising wedge of bearish reversal, as one might have expected once our ascending triangle morphed into said wedge.
Above the chart, readers will see a reading for relative strength that has returned to neutral territory.
That's all well and good. The problem is below the chart. The daily moving average convergence divergence is, for now, fraught with peril. The histogram of the nine-day exponential moving average remains in sub-zero territory, which signals a short-term bearish environment that will provoke some early morning profit taking this morning. The good news? Both the 12-day exponential moving average and 26-day exponential moving average are still running in positive territory.
The bad news would be that the 12-day EMA is running below the 26-day EMA. Had both of these lines been running below the zero-bound, that would be more of a medium-term bearish signal. The fact that they are both running in positive territory could to some degree mitigate the negativity.
It could also mean that the remaining human traders lay in wait at the 50-day line hoping to ambush the algorithmic traders who undoubtedly will be reading the sports pages or watching 14-year-olds fall off of skateboards on YouTube at the precise moment they need to be paying attention. Know thy enemy's weakness. Make them pay. You'll see them on the coffee line later and talk about the Super Bowl. They won't even know that you took them and their wallets to school on this day. I'm serious. They are not focused like we are.
Earnings
As of Jan. 23, according to FactSet, for the fourth quarter, Wall Street sees a year over year blended (results and projections) earnings growth for the S&P 500 of 8.2%, in line with last week. Wall Street also sees revenue growth of 7.8%, also unchanged from a week ago. With 13% of the S&P 500, 75% of S&P 500 member companies have reported earnings beats while 69% have beaten consensus for revenue generation. For the full year (2025), Wall Street now sees earnings growth of 12.4% (unchanged from last week) on revenue growth of 7.2% (also unchanged).
At the moment, technology, at earnings growth of 26.2% and materials at +10% are the only sectors projected to experience double-digit bottom-line growth for the fourth quarter. Presently, four sectors (discretionaries, energy, health care and the industrials) are projected to suffer a year-over-year earnings contraction. In addition, the staples are projected to grow earnings by less than 1% from the year ago period.
Valuation
Still using data provided by FactSet, the S&P 500 ended last week trading at 22.1-times 12 months' forward-looking earnings, down from 22.2 times a week ago. This is well above the five-year average of 20.0 times for the index as well as well above its ten-year average of 18.8 times.
The S&P 500 also ended last week trading at 28.4 times trailing 12 months' earnings, same as last week. That also stands well above the five-year (24.9 times) and ten-year (23.0 times) averages for the index.
Nine of the 11 sectors are still trading above their five-year average valuations, led by consumer discretionaries (29.3 times) and tech (25.7 times). Only the utilities (at 17.8 times) and the REITs (at 17.4 times) are not historically overvalued relative to their five-year averages.
The GDP Game
Last week, the Atlanta Fed revised their GDPNow model estimate for fourth-quarter economic growth up to 5.4% from 5.3% (q/q, SAAR). Among other regional central bank district branches running close to real-time fourth-quarter gross domestic product models, the New York Fed revised its estimate up to growth of 2.74% from 2.71%.
The Cleveland Fed revised its model up to growth of 3.08% from 2.85%. The St. Louis Fed, which has missed the mark quite badly on a regular basis in 2025, however, revised its Q4 model upward from -0.07% to -0.02%. St. Louis remains the outlier.
Fed Funds Futures
Fed Funds futures trading in Chicago are now pricing in just a 2.8% probability for a quarter-percentage point rate cut this Wednesday when the federal open market committee next meets on policy, down from 5% last week at this time. As we all know by now, the FOMC will look different at this meeting as Boston, Chicago, St. Louis and Kansas City have lost policy voting rights as part of the Fed's regular annual rotation. Cleveland, Philadelphia, Dallas and Minneapolis have now gained policy voting rights for calendar year 2026. At present, there are now a half percentage point worth of additional rate cuts fully priced in (61% chance, up from 58%) for all of calendar 2026.
On The Docket...
The week ahead will very likely be a "doozy" gang. We've got high-profile earnings. We've got some macro and then mid-week, the clown car pulls into the center ring, and all of your favorite central bankers will come pouring out.
.... The Federal Reserve Bank's FOMC will come out of their media blackout period on Wednesday afternoon. The official statement on monetary policy will be published at 2:00 p.m. ET that day followed by lame duck Fed Chair Jerome Powell's press conference a half hour later. We'll also hear from influential Fed Gov Michelle Bowman on Friday evening.
.... Thank goodness the World Economic Forum's annual show of arrogance is over for another year. Though Pres. Trump acquitted himself quite well last week and got from European leaders exactly what he and we needed, I have very little patience for the super elite patting themselves on the back and pretending that in some cases, their quite pedestrian 140 IQs are just going to knock our socks off.
.... The macroeconomic calendar will be moderately active this week. On Monday (this) morning, the Census Bureau will hit us with November data on Durable Goods Orders and more importantly, data on November orders for Core Capital Goods. November data on home prices will hit the tape on Tuesday morning followed on Thursday by revisions to what was initially reported as Q3 non-farm productivity and unit labor costs. December producer price index will make a landing on Friday morning.
.... The earnings calendar will be very active this week, but will not really heat up until tomorrow. That's when we hear from the likes of Boeing (BA) , Northrop Grumman (NOC) , Union Pacific (UNP) and Seagate Technology (STX) . On Wednesday morning, AT&T (T) , and GE Vernova (GEV) will step to the plate followed by IBM (IBM) , Lam Research (LRCX) , Meta Platforms (META) , Microsoft (MSFT) and Tesla (TSLA) that afternoon.
Thursday morning brings numbers from Caterpillar (CAT) , Lockheed Martin (LMT) , and Mastercard (MA) . Later that day, Apple (AAPL) , SanDisk (SNDK) and Western Digital (WDC) will all report. Finally, Friday morning brings American Express (AXP) , Chevron (CVX) and Exxon Mobil (XOM) . Then you can rest. Then the government shuts down. Oh, joy.
In other corporate news, Visa (V) will hold its annual meeting on Tuesday. Then Starbucks (SBUX) will hold an "Investor Day" on Thursday after having reported on Wednesday evening. I still say Seven-Eleven has better coffee, but maybe that's just me.
Note to Readers...
I truly hope that you and all of your families came out of this storm in one piece. If anyone knows anyone who needs to be added to my prayer list you know how to reach me.
Economics
(All Times Eastern)
08:30 - Durable Goods Orders (Nov): Expecting 1.4% m/m, Last -2.2% m/m.
08:30 - ex-Transportation (Nov): Expecting 0.3% m/m, Last 0.2% m/m.
08:30 - ex-Defense (Nov): Expecting 0.7% m/m, Last -1.5% m/m.
08:30 - Core Capital Goods Orders (Nov): Expecting 0.5% m/m, Last 0.5% m/m.
10:30 - Dallas fed Manufacturing Index (Jan): Expecting -6, Last -10.9.
The Fed
(All Times Eastern)
Fed Blackout Period.
Today's Earnings Highlights (Consensus EPS Expectations)
After the Close: (CR) (1.41), (NUE) (1.81), (WAL) (2.37)
At the time of publication, Guilfoyle was long INTC, JPM equity.
