On February 5, 2025, U.S. stocks closed higher, bolstered by gains in key sectors, including Telecoms, Financials, and Healthcare. The Dow Jones Industrial Average rose by 0.71%, the S&P 500 gained 0.39%, and the NASDAQ Composite added 0.19%.
Source: MTFX Group
Despite global and domestic challenges, the U.S. stock market has demonstrated remarkable resilience, remaining near record highs. For instance, the S&P 500 and Nasdaq indices continue to perform strongly, even as markets absorbed shocks from external factors like the development of artificial intelligence models by Chinese startup DeepSeek and President Trump’s new tariff initiatives.
Although stock multiples, particularly in Big Tech, are high, the market’s ability to recover quickly from concerns over issues such as the DeepSeek AI challenge and tariff announcements signals investor optimism. Many major tech executives have downplayed these concerns, viewing competition as an opportunity to drive further growth, especially in the AI sector. This recovery suggests that traders remain confident in the market’s long-term potential, despite short-term volatility.
U.S. Economy Stays Resilient Despite Tariff Uncertainty and Policy Risks
The U.S. economy shows significant resilience, as confirmed by Federal Reserve President Tom Barkin. Despite some challenges and uncertainties brought about by various policy decisions, such as tariffs and deregulation, the underlying economic indicators remain positive. As of early February 2025, there are no signs of an impending recession, and the economy is described as “healthy.” Growth is steady, with companies maintaining optimistic outlooks, although the unpredictability of U.S. government policies poses risks to long-term projections.
Source: Corp Magazine
Barkin highlighted several uncertainties, particularly the impact of tariffs. These trade measures introduce complexity for businesses, as they must navigate changes in cost structures, supply chains, and consumer pricing. The full impact on inflation and economic growth depends on the duration and scale of tariff implementations and retaliations. While the U.S. economy has thus far managed to absorb these shocks, it remains vulnerable to significant policy shifts.
GLOBAL ISSUES
Global Trade Tensions Rise as U.S.-China Tariff Battle Escalates
International trade tensions, particularly the ongoing tariff dispute between the U.S. and China, continue to shape the global economic environment. China’s response to the U.S. tariffs, including retaliatory measures and an investigation into U.S. tech giants like Google, underscores the broader geopolitical implications of these trade wars.
Source: Market Watch
Additionally, the U.S.’s tariff policies extend beyond China, affecting trade relations with neighboring Canada and Mexico. While tariff increases were temporarily postponed, the potential for future tariffs looms large. These trade disputes could lead to higher costs for a wide range of goods, from cars and vegetables to lumber, impacting both American consumers and global supply chains. The imposition of tariffs on U.S. exports, particularly to China, could further strain these relations, potentially leading to a reduction in global trade volume and economic activity.
WATCHOUT
Mixed Signals for Lululemon with Strong Growth and Bearish Trader Sentiment
Erste Group has initiated coverage on Lululemon Athletica Inc. (NASDAQ:LULU) with a Buy rating, citing the company’s strong sales growth, operating margin, and return on equity, which stand out in the competitive athletic apparel market. Their positive outlook is supported by Lululemon’s impressive revenue growth of 10.84%, a 24% five-year compound annual growth rate, and high operating margins and return on equity. The company’s recent upward revision of its earnings per share forecast also suggests potential for further gains.
Alongside Erste Group, other analysts, including Bernstein, TD Cowen, Evercore ISI, and Needham, have issued positive ratings and raised price targets, highlighting Lululemon’s growth potential in key markets like the Americas and China. InvestingPro data shows strong financial health, with the stock slightly undervalued, further reinforcing the belief in its upside potential.
Option Smile Chart for LULU
- Our in-house system assigns a bullish index score of 0.422 on a scale where 0 represents completely bearish and 1 represents completely bullish.
- The implied volatilities of the put options and the call options are roughly on par in the region close to the current stock price (ATM). That indicates that the fear or caution of a price fall is roughly equal to the greed or expectation of a price rise.
- The volumes of the put options is reasonably higher than the volumes of the call options, especially the volumes close to the current stock price. That indicates that on the net traders are bearish in the stock. Many puts are bought at the strike prices of 365 and 375. Apparently some traders fear that the stock price may slide to the price in that region.
- The open interest shows that there is a major put option induced support level at 400 and there are two call option induced resistance levels at 420 and 450.
Investment Opportunity & Risk
Costco Wholesale (NASDAQ:COST)
On Wednesday, Stifel analysts raised their price target for Costco Wholesale (NASDAQ:COST) to $1,075 from $1,000 and maintained a Buy rating following stronger-than-expected January sales results, including a 9.8% increase in total comparable sales and a 9.2% rise in U.S. core sales, surpassing consensus estimates. Costco’s impressive performance, with a 30.24% return over the past six months and a near 52-week high of $1,043.09, is reflected in its solid financials, including $258.81 billion in annual revenue and a 5.35% growth rate. The company showed strong growth across categories, particularly in Non-Foods and Fresh Foods, and a 7% traffic increase in January. Stifel also raised its F2025-F2026 EPS estimates, with a new price target based on 34 times the forecasted F2026 EBITDA, advising adding to positions on market weakness. Analysts believe Costco’s consistent outperformance, even in inflationary environments, justifies a premium multiple.
Costco also saw significant growth in e-commerce, with a 13.6% increase in January sales. In executive changes, Costco announced the retirement of Executive Vice President Richard Galanti. Bernstein and Truist analysts maintained Outperform and Hold ratings, respectively, with Bernstein emphasizing international expansion. S&P Global Ratings upgraded Costco’s credit rating to ‘AA’ from ‘A+’ due to its strong performance and low leverage, noting successful international growth and increasing margins.
Option Smile Chart for COST
- Our in-house system assigns a bullish index score of 0.979 on a scale where 0 represents completely bearish and 1 represents completely bullish.
- The implied volatilities of the put options and the call options are roughly on par in the region close to the current stock price (ATM). That indicates that the fear or caution of a price fall is roughly equal to the greed or expectation of a price rise.
- The volumes are only dominated the by call options volumes at the strike prices of 1070 and 1130. Therefore the current sentiment points a price move to 1130 and possibly beyond.
- From the open interest there is a call option induced resistance at 1060 which it appears at the moment to be easily overcome.
Walt Disney Company (NYSE: DIS)
Disney‘s fiscal first-quarter earnings exceeded expectations with a 5% revenue increase to $24.7 billion, driven by the growth of its Disney+ and Hulu services. Despite earnings of $1.40 per share and better-than-expected performance in its direct-to-consumer segment, Disney’s stock dropped 1.2% due to concerns over its guidance. The company raised subscription prices for Disney+ and Hulu in October, resulting in fewer cancellations than anticipated, though Disney+ lost 700,000 subscribers. The studio and sports divisions saw a profit boost from successful movies like Moana 2 and a rise in domestic advertising revenue for ESPN.
While Disney’s theme parks division remained steady, it suffered from hurricane-related losses and rising costs from the Disney Treasure cruise ship launch. However, Disney’s outlook remains uncertain, with projections of a further drop in Disney+ subscribers and a $50 million loss from the cancellation of its Venu Sports streaming venture.
Option Smile Chart for DIS
- Our in-house system assigns a bullish index score of 0.731 on a scale where 0 represents completely bearish and 1 represents completely bullish.
- The implied volatilities of the put options and the call options are roughly on par in the region close to the current stock price (ATM). That indicates that the fear or caution of a price fall is roughly equal to the greed or expectation of a price rise.
- The volumes of the call options is considerably higher than the volumes of the put options, especially the volume spike at the strike price 120. That indicates that traders believe the price will hit and surpass 120.
- At the open interest, there is a put option induced support level at 105 and a call option induced resistance level at 115.
Please note that the observation was made for the sentiment at the market close of February 5. And please also bear in mind that all boats rise and fall with the tide.
CONCLUSION
- The market will continue navigating a turbulent environment influenced by both domestic and international policy decisions.
- The U.S. economy remains strong, but governmental actions like tariff impositions, trade negotiations, and regulatory changes add uncertainty.
- Investors will need to adjust to evolving factors, including unpredictable government actions and global trade dynamics.
- Technological innovation and strong corporate earnings continue to fuel optimism, providing a solid foundation for market growth.
Please note that all information in this newsletter is for illustration and educational purposes only. It does not constitute financial advice or a recommendation to buy or sell any investment products or services.
About the Author
Rein Chua is the co-founder and Head of Training at AlgoMerchant. He has over 15 years of experience in cross-asset trading, portfolio management, and entrepreneurship. Major media outlets like Business Times, Yahoo News, and TechInAsia have featured him. Rein has spoken at financial institutions such as SGX, IDX, and ShareInvestor, sharing insights on the future of investing influenced by Artificial Intelligence and finance. He also founded the InvestPro Channel to educate traders and investors.
Rein Chua
Quant Trader, Investor, Financial Analyst, Vlogger, & Writer.
