Wall Street records best first week of a presidential term in four decades

Wall Street’s main indexes closed lower on Friday but the market still had its best start to a presidential term since Ronald Reagan assumed power in 1985.

Investors stepped back while they digested a mixed bag of economic data and earnings reports and prepared for a week filled with economic releases and a Federal Reserve meeting.

The S&P 500 lost 0.3 per cent on Friday, the Dow Jones Industrial Average fell 0.3 per cent and the Nasdaq Composite lost 0.50 per cent.

However, the indexes advanced for the second week in a row, with the S&P 500 up 1.7 per cent, while the Nasdaq rose 1.65 per cent and the Dow climbed 2.15 per cent.

The technology sector was the biggest drag on the market as megacap stocks, including artificial intelligence chip leader Nvidia, reversed a sharp rally seen earlier in the week.

“For now, sentiment towards US stock markets remains positive mainly because the technology sector is continuing to remain the gift that keeps on giving,” said Fawad Razaqzada, market analyst at City Index and Forex.com.

“The latest wave of optimism has been fuelled by advancements in AI and solid corporate earnings. President Trump’s announcement of a $500 billion investment in AI infrastructure, including the Stargate project with OpenAI, Oracle and Softbank, has been the centrepiece of this momentum.

"For now, valuation concerns and rising debt levels have been pushed to the backburner.”

Traders are betting the Fed will keep borrowing costs unchanged at its January 28-29 meeting, and expect its first rate cut in June, according to the latest data from CME Group’s FedWatch tool.

After lowering rates three times in late 2024, Fed Chair Jerome Powell and his colleagues are expected to hold rates steady until they see inflation make more downward progress towards their 2 per cent target.

The Big Tech earnings season starts next week. Investors are eager to see whether demand for AI will live up to expectations. The industry was buoyed when SoftBank Group, OpenAI and Oracle formed a $100 billion joint venture to fund AI infrastructure.

“Mr Trump’s massive AI spending commitment has driven megacap tech stocks higher, countering the cautious tone set by his protectionist trade policies,” Mr Razaqzada said.

“Despite the lingering threat of tariffs on Europe and China, investors seem focused on the growth potential offered by this ambitious investment.

“This ‘buy-the-dip’ mentality remains strong, with traders balancing optimism from growth initiatives against risks from potential trade disputes. Mr Trump’s moderated tariff proposals, including a 10 per cent levy on Chinese goods, offer some relief compared to the 60 per cent rate discussed during his campaign.”

Investors are also bracing for next week’s key inflation and economic growth data and the Fed meeting, while also waiting for policy updates from the Trump administration.

They worry that Mr Trump's proposed tariffs could exacerbate inflationary pressures and slow Fed rate cuts.

Mr Trump has said tariffs on Mexico, Canada, China and the EU could be announced on February 1.

The benchmark S&P 500 had ended Thursday with a record high, after Mr Trump called for taxes, oil prices and interest rates to be lowered during the first international appearance of his second term, at the World Economic Forum in Davos.

The S&P 500's biggest drag was Nvidia, which lost 3.1 per cent. Other heavyweight laggards were Microsoft, down 0.6 per cent and Tesla, which fell 1.4 per cent.

Dragging on the blue-chip Dow was Boeing, which lost 1.4 per cent after the plane maker warned of a fourth-quarter loss of about $4 billion.

Cryptocurrency-linked companies rallied following Mr Trump’s executive order favouring the industry.