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New Tariffs Surpass First-Term Levels, Escalating Trade Tensions The U.S. will impose sweeping new tariffs starting Tuesday, with a 25% levy on imports from Canada and Mexico and an additional 10% on Chinese goods. The move significantly expands Trump-era trade policies, heightening tensions with key allies and rivals alike. To ease consumer impact, Canadian energy imports—including oil, gas, and electricity—will face a lower 10% tariff. However, Canada swiftly retaliated with matching 25% tariffs on $155 billion worth of U.S. goods, including alcohol and fruit. Mexico also announced countermeasures, while China condemned the move, promising legal action and further retaliation. President Trump signed the tariff orders on Saturday, tying their removal to resolving illegal immigration and drug trafficking concerns at U.S. borders. Critics Question Strategy as Markets React While some China hawks support the tough stance, critics argue that Trump’s approach lacks a clear strategy. “There’s no coherent plan on tariffs,” said Derek Scissors, a former Trump trade advisor and senior fellow at the American Enterprise Institute. “He’s winging it—misstating trade deficits and blaming Canada for fentanyl smuggling.” The markets reacted negatively, with the Dow dropping 0.8%, the S&P 500 down 0.5%, and the Nasdaq slipping 0.3%. “We expected tariffs—but not Canada and Mexico first,” wrote Chris Krueger, a policy strategist at TD Cowen. “The chaos premium is real.” Legal Challenges and Economic Uncertainty The tariffs will be enforced under the International Emergency Economic Powers Act, requiring a national emergency declaration. While legal challenges are expected, courts generally defer to the president on national security issues. Brad Setser, a former senior U.S. trade advisor, warned on X that these tariffs represent a “massive shock” to the U.S. economy, describing them as “a bigger move in one weekend than all of Trump’s first-term trade actions combined.” Despite Trump’s tough talk on China, Setser argues his policies suggest a different goal—redirecting Chinese demand toward U.S. goods rather than cutting ties. Trump’s unpredictable trade policies, including his reversal on banning TikTok, have left investors struggling to anticipate the next move. “Investors have whiplash,” said Tobin Marcus, head of U.S. policy at Wolfe Research. “It’s exhausting trying to plan beyond the next two days.” John PaulJohn Paul is the founder of DayTradeToWin, a trading education and software company established in 2008, supporting traders worldwide. His expertise focuses on price action-based futures trading strategies and structured market analysis. DayTradeToWin delivers trading education, indicators, and software tools designed to help traders apply disciplined, rule-based decision-making across global futures markets. He is the creator of multiple trading methodologies, including the Sonic System, Atlas Line, and Trade Scalper, which help traders identify structured opportunities in markets such as the E-mini S&P 500 (ES), Nasdaq (NQ), crude oil (CL), and gold (GC). Official website: https://daytradetowin.com daytradetowin.com

IBM’s AI-Powered Consulting Growth Sparks Market Optimism IBM is making a comeback, and Wall Street is taking notice. Evercore ISI analyst Amit Daryanani sees a bright future for International Business Machines Corp. (IBM), following its latest earnings report. Investor enthusiasm has sent IBM’s stock soaring, making it the top performer in both the S&P 500 and the Dow Jones Industrial Average. The stock is on track for its best single-day gain ever. What’s driving this rally? Confidence in IBM’s consulting business. “We believe IBM’s unique position across software and consulting is starting to inflect higher, with AI and potential mergers & acquisitions acting as key catalysts,” Daryanani wrote. IBM’s software revenue jumped 11.5% on a currency-neutral basis last quarter, showing strong momentum. Although consulting revenue declined by 1%, the company expects growth to accelerate, backed by $5 billion in AI-related contracts that can be converted into sales. Shares of IBM surged 12.5% in afternoon trading, marking their biggest one-day gain since a 13% rise on July 20, 2000. IBM’s revenue grew just 1% last year, but the company is now targeting at least 5% growth in 2025 after currency adjustments. Ben Reitzes of Melius Research emphasized that consulting is playing a critical role in this turnaround. “Shifting consulting from a headwind to a tailwind—along with an expected boost from the mainframe cycle later this year—enabled IBM to project 5%+ constant currency revenue growth for 2025,” Reitzes wrote. “For long-time IBM watchers, this level of growth is rare.” And the outlook could improve further. Will next week’s analyst day reveal a roadmap for even faster expansion? “We believe IBM has the potential to accelerate from 5%+ to 7% growth over the next few years as it shifts further toward Red Hat and other high-growth software segments like HashiCorp and automation,” Reitzes added. Morgan Stanley’s Erik Woodring noted that IBM’s stock momentum suggests the market views the 2025 outlook as conservative, with room for upside in areas like organic software growth. “There’s also a belief that IBM could be gearing up for more M&A activity (which we agree with), potentially driving even stronger results in 2025,” Woodring wrote. “At this point, the burden is on the skeptics to explain why IBM’s momentum won’t continue beyond next week’s analyst day.” IBM’s AI-driven transformation is gaining traction, and investors are betting this is just the beginning. John PaulJohn Paul is the founder of DayTradeToWin, a trading education and software company established in 2008, supporting traders worldwide. His expertise focuses on price action-based futures trading strategies and structured market analysis. DayTradeToWin delivers trading education, indicators, and software tools designed to help traders apply disciplined, rule-based decision-making across global futures markets. He is the creator of multiple trading methodologies, including the Sonic System, Atlas Line, and Trade Scalper, which help traders identify structured opportunities in markets such as the E-mini S&P 500 (ES), Nasdaq (NQ), crude oil (CL), and gold (GC). Official website: https://daytradetowin.com daytradetowin.com

While the Federal Reserve is expected to keep interest rates steady on Wednesday, speculation about potential hikes has resurfaced. Analysts at Barclays still anticipate a gradual decline in rates through 2025 but acknowledge that a rate hike isn’t entirely off the table. Options markets currently price in a 25% chance of an increase. “The threshold for the Fed to reverse its rate-cutting course is high,” Barclays’ macro research team noted in a client report Tuesday. “Such a move could damage the Fed’s credibility.” However, they warned that a shift in economic conditions—such as a renewed surge in inflation, rising inflation expectations, or a sharp drop in unemployment—could prompt policymakers to reconsider. Lessons from Past Fed Reversals Barclays examined three historical cases where the Fed reversed course and raised rates: In all instances, labor market strength and a steepening yield curve were major drivers. Market Implications The 10-year Treasury yield (4.52%) has already climbed above the 3-month yield (4.29%), reflecting confidence in economic resilience but also concerns over potential inflationary pressures under a second Trump administration. Short-term yields initially declined when the Fed began cutting rates in September and December, bringing its policy rate to 4.25%–4.50%—a full percentage point below its peak. If the Fed signals a possible hike, Barclays expects the 2-year and 10-year Treasury yields to exceed 5%, which could weigh on equities. The bank previously warned that a 10-year yield at 5% could be problematic for stocks. Treasury Market & Liquidity Shifts A shift toward rate hikes could trigger a repricing in short-term Treasury rates, further expanding the $7 trillion money-market fund industry while pressuring bank deposits. The Road Ahead Despite the uncertainty, market sentiment still leans toward additional rate cuts in 2025. As of Tuesday, Fed-funds futures traders were pricing in a 50-basis-point cut this year, up from 25 basis points the prior week, per the CME FedWatch Tool. Investors will be closely watching Fed Chair Jerome Powell’s press conference on Wednesday and Friday’s release of the December personal consumption expenditures (PCE) index, the Fed’s preferred inflation gauge. John PaulJohn Paul is the founder of DayTradeToWin, a trading education and software company established in 2008, supporting traders worldwide. His expertise focuses on price action-based futures trading strategies and structured market analysis. DayTradeToWin delivers trading education, indicators, and software tools designed to help traders apply disciplined, rule-based decision-making across global futures markets. He is the creator of multiple trading methodologies, including the Sonic System, Atlas Line, and Trade Scalper, which help traders identify structured opportunities in markets such as the E-mini S&P 500 (ES), Nasdaq (NQ), crude oil (CL), and gold (GC). Official website: https://daytradetowin.com daytradetowin.com

The start of President Donald Trump’s second term has sparked a robust rally, driving the S&P 500 stocks to record highs and stretching market valuations to historic levels. Investors are now exploring alternatives to megacap technology stocks, seeking more affordable opportunities that could still benefit from the administration’s early policy actions. This week, the forward price-to-earnings (P/E) ratio of the S&P 500 rose above 22, nearing its highest point in nearly four years. The last time it exceeded this level was in November, when the ratio reached 22.34, the highest since December 2020, according to Dow Jones Market Data. The P/E ratio—a key metric that compares a stock’s price to its earnings per share—can signal overvaluation. A high ratio suggests that stock prices may have outpaced their underlying earnings, raising concerns about sustainability. Elevated Valuations Raise Questions Jamie Dimon, CEO of JPMorgan Chase, expressed caution about current market conditions. In an interview with CNBC during the World Economic Forum in Davos, Switzerland, he remarked that asset prices are “in the top 10% or 15%” of historical valuations, describing them as “kind of inflated, by any measure.” Given these lofty valuations, analysts suggest turning to less speculative, fundamentally strong sectors that could thrive under a Trump-led economy. With a resilient U.S. economy and optimism surrounding advancements in artificial intelligence, certain areas of the market may offer attractive opportunities. Promising Market Sectors Financials Financial stocks, though no longer as inexpensive as earlier in 2024, still hold appeal. With solid economic prospects, analysts anticipate increased bank loan activity, mergers and acquisitions, and IPOs. These trends, combined with Trump’s deregulation agenda, create a favorable environment for the financial sector, which was one of 2024’s top performers. Industrials Industrial stocks are gaining momentum, with Wall Street forecasting double-digit earnings growth in 2025. Additionally, economic stimulus measures in China are expected to boost demand within this cyclical sector. Utilities The utilities sector also looks compelling, driven by the administration’s $500 billion Stargate initiative aimed at supporting AI infrastructure. This project is expected to drive significant electricity demand, providing a tailwind for utility companies. The Role of Big Tech in 2025 Despite their elevated valuations, megacap technology stocks remain a focal point for investors. The so-called “Magnificent Seven” are projected to continue delivering strong earnings growth, albeit at a slower pace compared to recent years. According to Mark Luschini, chief investment strategist at Janney Montgomery Scott, these tech giants will likely remain the primary drivers of market performance in 2025. However, for the broader S&P 500 to advance, the market must rely on actual earnings growth rather than further expansion of already high valuations. Katie Nixon, CIO at Northern Trust, noted that while robust earnings growth is expected in 2025, high interest rates could act as a headwind, potentially offsetting some of the market’s gains. Market Snapshot On Thursday, U.S. stocks delivered mixed results. The S&P 500 edged up 0.2% to another record high, while the Dow Jones Industrial Average gained 0.8%. Meanwhile, the Nasdaq Composite dipped 0.2%, according to FactSet data. President Trump’s calls for lower interest rates and reduced oil prices continue to influence market sentiment. John PaulJohn Paul is the founder of DayTradeToWin, a trading education and software company established in 2008, supporting traders worldwide. His expertise focuses on price action-based futures trading strategies and structured market analysis. DayTradeToWin delivers trading education, indicators, and software tools designed to help traders apply disciplined, rule-based decision-making across global futures markets. He is the creator of multiple trading methodologies, including the Sonic System, Atlas Line, and Trade Scalper, which help traders identify structured opportunities in markets such as the E-mini S&P 500 (ES), Nasdaq (NQ), crude oil (CL), and gold (GC). Official website: https://daytradetowin.com daytradetowin.com