Market Volatility Spikes on Impact of Tariffs
The week ahead is likely to provide more volatility as we enter the busiest week of the earnings season and futures markets indicate further declines as investors wrestle with the impact of tariffs. However, the disparate outcomes of last week indicate that there are opportunities for investors who are prepared to look beyond the headlines and identify undervalued companies at attractive prices. When valuation gaps become large and sentiment changes, investors can benefit from using pincers to select investments rather than a shovel.
Last week, the impact of tariffs was also seen in the bond and currency markets with the dollar rising sharply, depressing returns from overseas markets and Treasury yields moving higher, creating tighter financial conditions for companies and individuals. Against this background the outcome of the Federal Reserve on Jan. 29, the Q4 economic growth data on Jan. 30 and Personal Consumer Expenditure (PCE) report on Jan. 31 went almost unnoticed. However, you can find out what Preston Caldwell, Morningstar’s chief economist, made of this data and the potential impact of the tariffs in this video.
Mixed Results From Tech Stocks
In a tumultuous week that started with a 16% decline in Nvidia NVDA and ended with the announcement of tariffs on Canada, Mexico and China, sentiment among investors soured as the US market fell 0.9%. However, this headline outcome masks a sharp divergence in the movements of individual stocks and sectors which is most clearly seen in the large technology companies that dominate the US market.
While AI leaders Nvidia, Microsoft MSFT, and Broadcom AVGO all fell sharply driving a 3.6% decline in the US technology sector, Apple AAPL bucked the trend, rising 5.9% following positive results. US communication services companies also rose 2.6% driven by strong results from Meta Platforms META which accounts for 24.5% of the sector. You can read Morningstar’s take on Meta’s results here and follow the most recent earnings announcements on this dedicated page.
Is Nvidia Stock Now Undervalued?
The impact on DeepSeek’s new AI model is a reminder of how vulnerable stock prices of overvalued companies can be to surprises and consequently the importance of anchoring expectations on a realistic estimate of the fair value of a business rather than seeking catalysts to guide investing decisions. Following the decline in Nvidia’s stock price it is now trading at a discount to Morningstar’s assessment of its fair value and consequently appears more attractive than at the start of last week. To find out more about the impact of DeepSeek on Nvidia and other AI related companies, check out this article by Eric Compton, Morningstar’s sector director of US technology.
The divergence in prices was also seen across the broader market as US value stocks rose 0.2% while US growth fell 1.8% with the former being held back by a sharp decline in US energy which fell 3.9% following results from index heavyweights Exxon Mobil XOM and Chevron CVX. You can see this divergence clearly in Morningstar’s market barometer.
Non-Farm Payrolls Due This Week
Alongside the company results, we also have the US employment report on Friday which economists expect to indicate a softening of the jobs market. A stronger outcome is likely to be viewed negatively as it will compound fears of inflation and lower expectations of future interest rate cuts. You can follow all of the economic and company announcements using this calendar.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.
