February 7, 2025: Markets Mixed as Tech Rallies—AI Stocks Lead While Blue Chips Retreat

Hook

Nvidia's 5.2% surge powered tech stocks higher while the Dow slipped 0.3%, highlighting the growing divergence between AI leaders and traditional blue chips. Here's how traders can position themselves amid this rotation.

Core Analysis

Key Developments:

  • S&P 500 climbed 0.4% to 6,083.57, outperforming expectations despite mixed sector performance
  • Nasdaq advanced 0.19% to 19,791.99, driven by AI-related stocks recovering from recent losses
  • Initial jobless claims rose to 219,000 (↑11,000), suggesting subtle labor market cooling
  • Canadian markets showed resilience above 25,380 despite ongoing trade tensions

Sector Breakdown:

  • Technology: AI stocks rebounded led by Nvidia's 5.2% gain, while broader tech remained mixed
  • Healthcare: Eli Lilly surged 3.4% on strong earnings ($5.32 EPS vs estimate) with revenue up 45% YoY
  • Consumer Staples: Philip Morris rallied 11% after beating Q4 expectations with net revenues of $9.7 billion
  • Transportation: XPO Inc. jumped 7.8% following strong quarterly results

Strategic Playbook

Short-Term (Traders):

  • Consider pair trades: Long AI leaders / Short traditional tech
  • Watch for momentum continuation in healthcare following LLY's beat
  • Monitor Canadian exposure given potential trade developments

Long-Term (Investors):

  • Maintain core AI exposure while diversifying into value sectors
  • Consider increasing healthcare allocation given strong earnings trends
  • Keep position sizes moderate with P/E ratios at elevated levels (S&P 500 P/E: 28.77)

Forward Outlook

Catalysts:

  • Upcoming Fed commentary on labor market dynamics
  • Additional Q4 earnings reports from tech sector leaders
  • Consumer inflation expectations data (currently at 4.3%)
  • Market response to productivity growth (Q4: +1.2%)

Risk Radar:

  • Potential US-Canada trade tensions despite temporary tariff pause
  • Labor market cooling could accelerate faster than expected
  • Elevated Shiller CAPE ratio (36.98) suggesting potential valuation risks

The information provided in this blog post is for educational purposes only and should not be considered as financial advice. Always conduct your own research and consult with a qualified financial advisor before making investment decisions.