Michael Reinking:
Hello, I'm Michael Reinking, senior market strategist at the New York Stock Exchange, and this is Market Storylines. Every week we are here to keep you up to date on the key trends and events driving global markets. We are recording on Thursday morning, so let's dive into this week's Market Storylines. By recent standards, this week has been a bit quieter with the major economic data in the view and deadlines for tariffs and the debt ceiling still a few weeks away. Last week we came to you as President Trump began to lay out the very high-level framework for reciprocal tariffs. Markets rallied following that announcement as the implementation isn't set to begin until at least the start of April, leaving plenty of time for negotiations. That rally left the S&P 500 trading just under its all-time high. Now, last Friday's retail sales report came in well below expectations, though the previous month's numbers were revised higher, reducing some of the sting. But this was the last piece of very sloppy economic data released during the week.
Now, once again, markets rationalized the report, pointing to revisions, severe weather, wildfires, and of course the post-holiday hangover. So this seems like a good transition into arguably the most important macro data point of this week, Walmart earnings. Now this bellwether is the country's largest retailer, giving it a unique perspective on the state of the consumer. The stock traded sharply lower this morning after reporting earnings. The quarterly numbers were slightly ahead of estimates, but guidance came in below expectations with management calling out FX, the Vizio acquisition, and the lapping of the leap year as drags. Now the quarterly numbers were solid and commentary about the consumer was cautiously optimistic. Management highlighted a strong holiday season with improvement in discretionary spending and also noted that January was the strongest comp in the US business. I did not get the sense that the guidance was met to signal a shift in the environment and management suggested there was some caution built into the numbers given the uncertain environment.
So overall, I think this was a solid report and the stock reaction was more about the very high expectations coming in. To put that into perspective, ahead of today's report, the stock was up over 50% since the end of Q2. Now this week, the trading has been pretty choppy with the S&P 500 making marginal new all-time highs throughout the week coming into today. But as we highlighted last week, there were some underlying signs of caution beneath the surface. Investors were moving up the capitalization scale and there was some outperformance in defensive sectors. Now, while the S&P 500 was hitting new all-time highs, the S&P Small and Mid-Cap indices were both trading below their respective 50-day moving averages. Now, the expansion of breadth that investors have been longing for has been happening, but in the way of outperformance in global like Europe and China. Now, at the same time, there seemed to be a piling into momentum stocks in the US and you could even argue that Walmart might fall into that bucket given the performance stats I just presented.
Now, that dynamic seemed to hit a breaking point late in the day yesterday and into this morning. And as we're recording mid-morning, most major US indices are down around 1%. Looking within the S&P 500, the top 10% of year-to-day performers are off an average of 1.5% today, while the bottom 10% is down less than a quarter of a percent. Now, this type of gut-check sell-off, especially with crowded positioning, is not uncommon when indices are hitting new all-time highs and there doesn't seem to be a headline driving the sell-off. Now keep in mind, tomorrow is options expiration and may be adding to some of this volatility. Now the S&P 500 just broke below 6,100, a key strike, with the 50-day moving average closer to 6,000. Now at this point, the VIX remains pretty contained, hovering around 16, something to pay attention to. And I'm also keeping an eye on the yen, which if you recall, was at the epicenter of the August weakness as it is rallying sharply versus the US dollar, breaking below the 200-day and the closely watched 150 level.
Now, as we look ahead to the end of the week, outside of options expiration, the week's most impactful economic data is also released on Friday with the S&P Global Flash PMIs. Now, the regional surveys released throughout this week have been mixed, but higher prices components have been a consistent theme. Now that being said, Treasury Yields are only a touch higher having pulled back after yesterday's FOMC minutes suggested that the QT could be paused or wound down earlier than previously expected given the debt ceiling situation. Now, in addition, this morning in an interview, Treasury Secretary Bessent noted that the terming out of debt was a long ways off, which also put a bit beneath the tenure. Now, looking out to next week, the economic calendar remains pretty light until next Friday when China PMIs and EU inflation are released overseas. Stateside personal income and spending and PCE are out ahead of the open.
Now, the January quarter end earnings cycle will continue as we'll start to hear from other major retailers. The tech earnings will also be in focus with Salesforce, Snowflake and NVIDIA reporting after the close on Wednesday, while Dell and HP are out on Friday. Now, undoubtedly Washington will remain in the headlines with tariffs currently taking a backseat to the Ukraine situation, while the debt ceiling deadline draws ever closer. Once again, thank you for spending some time with us today. Remember, you can watch Market Storylines on tv.nyse.com or our YouTube channel, or you can listen every Friday on the Inside the ICE House podcast feed. Thanks for joining me. I'm Michael Reinking. I'll talk to you again next week.
Speaker 2:
Information contained in this podcast was obtained in part from publicly available sources and not independently verified. Neither ICE nor its affiliates make any representations or warranties express or implied as to the accuracy or completeness of the information and do not sponsor, approve or endorse any of the content herein, all of which is presented solely for informational and educational purposes. Nothing herein constitutes an offer to sell, a solicitation of an offer to buy any security or a recommendation of any security or trading practice. Some portions of the preceding conversation may have been edited for the purpose of length or clarity.