CWS Market Review – February 4, 2025

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The futures markets start trading late on Sunday evening, and that often gives investors an idea of how the U.S. stock market will open on Monday. This past Sunday, the futures markets were down sharply, over 2%.

It seemed that the Great Trade War of 2025 was finally coming for share prices. President Trump threatened to impose severe tariffs on our neighbors and key trading partners. The U.S. national anthem was even booed at a few hockey games.

The stock market did, indeed, open lower on Monday, and prices drifted downward for about an hour. At its low point, the overall loss on Monday was about 2%.

Fortunately, cooler heads finally prevailed. According to the New York Times, both Canada and Mexico reached last-minute deals to avert a trade war with the United States. At least, the tariffs are going to be delayed for 30 days, but no deal has been reached with China.

The S&P 500 gained back a lot of lost ground, and the market continued to rally higher on Tuesday. Growth stocks and small-caps did especially well on Tuesday. The speed at which these deals were reached tells me there’s absolutely zero desire for a serious trade war.

“Tariffs are very powerful, both economically and in getting everything else you want,” Mr. Trump said on Monday. “When you’re the pot of gold, the tariffs are very good, they’re very powerful and they’re going to make our country very rich again.”

Maybe so, but tariffs haven’t been well liked on Wall Street, as Sunday’s futures showed. On June 17, 1930, President Herbert Hoover ignored the advice of 1,000 economists and signed the Smoot-Hawley Tariff Act. The stock market fell 8% that day. Let’s hope we don’t repeat that.

After the closing bell on Tuesday, Google (GOOG) reported earnings of $2.15 per share which was two cents better than estimates. The stock fell about 8% in after-hours trading, which makes me wonder what the expectations really were. Cloud revenue was also on the light side.

Broadridge Rallies on Earnings Beat

Last Friday morning, we got a very good earnings report from Broadridge Financial Solutions (BR), one of our Buy List stocks. The report came out too late to cover in last week’s premium issue, so I wanted to share the good news with you today.

If you’re not familiar with Broadridge, it processes all the corporate communications for companies and their shareholders. If you’ve wondered who calculates all those proxies, it’s probably Broadridge. The company holds an 80% market share. This is a great but little-known stock.

A few years ago, The Financial Times called Broadridge, “an obscure but lucrative Wall Street utility.” That’s right, but it’s not obscure to us!

Reuters notes that “the financial services industry is undergoing rapid digital transformation, with companies increasingly adopting cloud computing, artificial intelligence, and blockchain technologies.”

On Friday, Broadridge said its fiscal-Q2 earnings rose 70% to $1.56 per share. That’s a great result and it topped Wall Street’s call for $1.49 per share. BR’s recurring revenues grew by 9%.

“Broadridge delivered strong second quarter results, including 9% Recurring revenue growth constant currency, record event-driven revenues, and 70% Adjusted EPS growth to $1.56,” said Tim Gokey, Broadridge CEO. “Our Recurring revenue growth was driven by a combination of 7% organic growth and our acquisition of SIS.

“Broadridge is executing on our long-term growth strategy to democratize and digitize investing, simplify and innovate trading, and modernize wealth management. Our strong organic growth continues to be powered by long-term trends, including increasing investor participation, and by the conversion of our record sales backlog,” he continued.

BR’s quarterly adjusted operating margin grew from 12.4% to 16.6%. The company also reiterated its guidance for the current fiscal year, which ends in June.

Broadridge sees recurring revenue for this year growing by 6% to 8%, and earnings growing by 8% to 12%. That works out to earnings of $8.35 to $8.65 per share.

The shares had a very volatile reaction on Friday morning, but once things started to settle down, the stock started to rally, and the gains continued into this week. On Tuesday, the stock hit a fresh all-time high.

We’ve done very well with Broadridge over the years. We first added it to our 2019 Buy List, and it’s been there ever since. We added it at $96.25, and it’s gained 150% since then, not including dividends. One small investing lesson: After 15 months, Broadridge was a loser for us. I’m glad we held on. Broadridge remains a strong buy up to $250 per share.

Last week, the government released its first report on Q4 GDP growth. According to the government bean counters, the U.S. economy grew at a real, annualized rate of 2.3% over the final three months of the year. This was the 11th quarter of expansion in a row, although the growth rate is down from where it was earlier this decade. Wall Street had been expecting 2.5%.

For the year, the U.S. economy grew at a 2.8% rate. That’s not bad, but it’s down a bit from 2023. Since 1992, the U.S. economy has only had two down years. Over the last 40 years, real GDP per capita has nearly doubled.

I usually don’t follow nominal GDP figures, but with the bad spell of inflation, I saw that nominal GDP, meaning not adjusted for inflation, increased by 36.6% over the last four years. The U.S. economy now totals $30 trillion.

The Federal Reserve met again last week, and this time, the Fed decided against lowering interest rates. The central bank had lowered rates over its previous three meetings, the first one by 0.5%.

It appears that the Fed will be far more modest regarding its plans to lower interest rates this year. Not too long ago, market participants had been expecting the Fed to cut rates four times or more this year.

In the futures market, traders can make bets on what they think the Fed will do. Right now, traders expect the Fed to pause again at its March and May meetings but then cut rates again at the June meeting. After that, traders are evenly split on a rate cut coming in October. I try not to pay too much attention to futures prices that far away. At some point, it’s just a guess.

The next big event will come this Friday when the government releases the jobs report for January. The December jobs report was very strong. It beat expectations by over 100,000 jobs. For January, Wall Street expects the economy to add 169,000 net new jobs and for the unemployment rate to stay at 4.1%.

I’ll be curious what the report has to say about wages. The consensus on Wall Street is that wages grew by 0.3% last month. That would be good, but I’d really like to see it go much higher. After the jobs report, we’ll get the next inflation report on Wednesday, February 12.

That’s all for now. I’ll have more for you in the next issue of CWS Market Review.

– Eddy

Posted by on February 4th, 2025 at 6:10 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.