2/2/25

Weekly Market Recap

Last week, the stock market was whipsawed by the large movement in Nvidia stock. Initially, Nvidia started the week nearly 16% below its closing price on the Friday of the previous week. There was some recovery on Tuesday, but the stock experienced more weakness for the rest of the trading week, leaving it with a 13% loss year-to-date. Despite this weakness in Nvidia, the overall S&P 500 posted about a 1% gain for the week.

For those who weren't closely following the Nvidia story, a Chinese company released a piece of AI software called Deep Seek, which they claimed was trained with very low input costs. In short, if it's possible to program artificial intelligence with less processing power, that could hurt Nvidia. However, this could also be viewed as a win for the broader economy. If artificial intelligence has truly become cheaper and more accessible, it should enable more businesses and individuals to take advantage of its capabilities. Still, there are questions about the claims made by Deep Seek, as some doubt that they truly trained the model for such a low cost.

It was encouraging to see the broader stock market perform relatively well, even in a period of weakness for one of the largest U.S. stocks. If anything, this serves as a reminder of why it never makes sense to go all in on one stock—the narrative can change quickly, and winners can become losers over a short period of time.

Chart of the Week

Our chart of the week shows how the S&P 500 has performed during previous rate-cutting cycles. The red line represents the current cycle we are in. Based on this chart alone, it’s tough to draw any conclusions about whether rate cuts are good or bad for stocks. Clearly, during several rate-cutting cycles, the market has gone on to post double-digit gains. However, there are also the 2001 and 2007 cutting cycles, where the market fell by over 30%. Both of those periods coincided with recessions—the recession in 2001 was mild, while the recession in 2008 was one of the worst ever.

While it’s clear that rate cuts do have an effect on the market, they are just one of many factors that influence investment returns. Therefore, I don’t believe the simple fact of the Fed cutting or increasing rates is enough to change one’s view of the market’s direction. It is clear that when the Fed cuts rates to try to avoid a recession (as in 2001 and 2007), it hasn’t been good for stocks. However, perhaps those recessions were unavoidable, and the declines could have been even worse without the rate cuts. At the end of the day, it’s important to understand how your portfolio might perform in various market environments.

Written by:

Ben Rones, CFA®

Senior Analyst at R&R Financial

The commentary in this newsletter is for informational purposes only and should not be taken as personalized investment advice

Chart of the week Source:

FactSet, Federal Reserve, LSEG Datastream, S&P Global, J.P. Morgan Asset Management. Past performance is nota reliable indicator of current and future results. Excludes 1998 episode due to the short length of the cutting cycleand economic context for the cuts.

Guide to the Markets – U.S. Data are as of January 30, 2025.