It’s safe to say global markets haven’t had the best start to the year. The S&P 500 slipped 210 points in the weeks following Christmas, reaching a two-month low on 10 January. The FTSE 100, DAX and Nikkei suffered similar dips.
But news of rising US employment rates helped pause the S&P 500’s decline. Then, yesterday (15 January), consumer inflation data revealed a slowdown in price increases. After dashed hopes of interest rate cuts and the threat of trade tariffs, the market needed some good news.
Following the index’s 1.7% jump, the Dow Jones Industrial Average rose 1.6% and the Nasdaq Composite soared 2.3%.
The US Consumer Price Index (CPI) now shows more promise of reaching the Fed’s 2% inflation target for December. The month-on-month slowdown in growth from 0.3% to 0.2% is the first sign of deceleration since July 2024. Odds of an interest rate cut in June are now considered more likely than not.
But don’t get too excited.
US equity forecasts for 2025 are still underwhelming compared to last year. So what does this all mean for investors?
Choosing the right tech
An overarching theme I’m seeing more frequently is uncertainty regarding the major tech stocks. The so-called Magnificent 7 appear to have fallen out of favour. This may be partly due to Warren Buffet’s Berkshire Hathaway selling two-thirds of its Apple stock.
Some feel the move was a mistake and Apple remains the highest-weighted stock on the Nasdaq 100. But it’s hard to ignore one of the world’s most successful investors. I’m no die-hard fan but I can’t help but wonder: does he know something we don’t?
So to err on the side of caution, I’m steering clear of big tech for now. However, one major US tech stock I hold could buck the trend, and I think investors may want to consider it.
On the sidelines
Axon Enterprise (NASDAQ: AXON) is a US tech company that manufactures safety devices such as TASERs, body-worn cameras, and digital evidence management software.
Its products are used by police and military across the US and have seen a surge in demand recently. Innovative developments like its Draft One AI-enhanced reporting software have helped boost sales.
In its third-quarter results for 2024, it reported earnings of $1.45 per share and revenue of $544.3m, a year-on-year increase of 42% and 32%, respectively.
The rapid growth meant it joined the Nasdaq 100 in December last year, moving to position 73 with a weighting of 0.28%.
Naturally, the soaring price has raised some concerns. With a price-to-earnings (P/E) ratio now well above 100, further price growth seems hard to imagine. A mild correction has already seen the price fall 10% in the past month. If the next earnings report falls below expectations, the price could take a big hit. It also faces the risk of budgetary cuts or regulatory changes.
Still, I think its long-term prospects are strong, driven by its dominance in a niche market. As competing semiconductor stocks try topple each other, Axon may sidestep the action and scoop up the spoils.
