Uriel Loredo

The performance during the season has been encouraging, with corporate profits exceeding expectations.

With more than 75% of S&P 500 companies having reported their results, earnings grew 11% year-over-year, surpassing expectations and marking the fastest pace in three years.

Key data:

• 76% of companies beat estimates, with an aggregate growth of 7%.

• Excluding tech megacaps, earnings grew 20%, the fastest pace since 2022.

• Megacaps (MSFT, AAPL, GOOGL, META, AMZN) 27% annual growth, with profit margins close to 25%. NVIDIA will report on February 26, with expected growth of 72%.

• The P/E multiple premium of megacaps fell to 30%, below its five-year average (50%).

• AI dominated earnings calls, with tech companies projecting a 49% increase in CAPEX for 2025.

The corporate sector remains resilient, with AI as a key driver. However, the 14% earnings growth forecast for 2025 may face challenges amid a restrictive monetary environment and new trade tariffs.

Tech Megacap Earnings Growth Minus S&P 500 Earnings Growth Excluding Tech Megacaps

Source: JP Morgan

Core inflation rose to 3.3% year-over-year, with the shelter index as the largest contributor. 

The Consumer Price Index (CPI) increased 0.5% month-over-month in January, exceeding the 0.3% forecast. On an annual basis, headline inflation reached 3.0%, also above the 2.9% estimate. 

Key factors driving the increase: 

• Shelter: +0.4% in January, accounting for nearly 30% of the monthly increase. The annual rise was 4.4%. 

• Energy: +1.1% month-over-month, with gasoline rising +1.8%. 

• Food: +0.4% month-over-month; egg prices surged 15.2% due to avian flu. 

Core inflation (excluding food and energy) increased 0.4% month-over-month and 3.3% year-over-year, exceeding estimates. Other notable increases were seen in auto insurance, recreation, and healthcare. 

What’s Next? 

Although inflation has cooled from its 2022 peaks, housing costs continue to exert pressure. Jerome Powell reiterated that the Fed is in no rush to cut rates, and markets now anticipate that the first-rate cut could be delayed until the second half of the year. 

Annual change (%) of the general and underlying consumer price index (CPI) (Core CPI) 

Source: US Bureau of Labor Statistics

DeepSeek is revolutionizing AI with a more efficient and accessible model, generating significant interest. 

The recent announcement of DeepSeek has captured the attention of the technology and financial industries, signaling a potential disruption in the artificial intelligence and semiconductor sectors. This efficiency has fueled its rapid adoption, accelerating downloads of its application. Below, we highlight some key points. 

Key Highlights: 

• Unprecedented efficiency: DeepSeek trains models with only $5 million and 2,000 GPUs, compared to the $100 million and 100,000 GPUs required by current industry leaders. 

• Market impact: Following the announcement, NVIDIA and other leading players in the industry saw significant stock losses, reflecting a potential shift in market dynamics. 

• Challenges ahead: From national security concerns to regulatory risks and cybersecurity threats, DeepSeek’s path is not without obstacles. 

While it is still early to assess its long-term impact, the evolution of DeepSeek raises key questions about the future of hardware and semiconductors in the AI industry.  

We remain attentive to exploring the implications of this breakthrough together. 

DeepSeek vs. ChatGPT comparison 

Source: Datacamp.com 

The Federal Reserve holds its benchmark rate steady, but the market anticipates adjustments in 2025. 

As expected, the Federal Reserve (Fed) maintained its benchmark interest rate within the 4.25%-4.5% range. This decision marks a pause following three consecutive cuts since September 2024, totaling a one-percentage-point reduction. 

The Fed’s statement highlighted that economic activity continues to grow at a solid pace, while unemployment remains low and the labor market strong. However, inflation remains somewhat elevated, and the Fed omitted previous references to progress toward its 2% target. 

Looking ahead, markets are pricing in a 3.9% rate by the end of 2025, with a 61% probability of at least two quarter-point cuts this year. The first cut could come as soon as the June 18 meeting. 

We will continue monitoring the Fed’s decisions and their impact on the markets. If you’d like more information on how this policy could affect your financial strategies, feel free to reach out to us. 

Expectations for the Fed Funds Rate

Source: JP Morgan 

China exceeds growth expectations in 2024 but faces significant challenges.

In 2024, China’s economy achieved a 5.0% growth rate, meeting the official target. However, this performance—its weakest since 1990, excluding the pandemic years—reflects an economy heavily reliant on fiscal and monetary stimulus. Key highlights include: 

• Inflation: Increased by only 0.2%, signaling weak domestic demand. 

• Industrial production: Grew 5.8%, led by high-tech sectors (+8.9%). 

• Real estate: Declined 10.6%, highlighting weakness in the sector. 

• Demographics: Population decreased 1.39 million, exacerbating the aging challenge. 

• International trade: Exports grew 7.1%, and imports 2.3%. 

• Unemployment: Urban unemployment rate remained stable at 5.1%. 

Despite these figures, China’s economy continues to face significant pressures, including weak domestic consumption, a persistent real estate crisis, and ongoing trade tensions with the U.S. Analysts anticipate that the government will announce new stimulus measures, although fiscal and monetary policy options are increasingly constrained. 

We will closely monitor the growth target China sets in the near future and assess the impact of its measures on the global economy. 

Annual and quarterly GDP evolution 

• oya: Refers to year-over-year variation. 
• Q/Q: Refers to quarter-over-quarter variation. 

Source: JP Morgan