Speaker 1 (00:05):
Hello, I'm Michael Rein King, 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 key trends and events driving global markets, and there are no shortage of topics, so let's get to this week's market storylines. It has been a tough slog for US equity markets over the last month with significant pickup in volatility. Now, last week was the worst week for the s and p 500 since last September with the index closing lower by around 3%. It's third consecutive weekly decline. Now the index spent the back half of the week testing. Its 200 day moving average for the first time since Q4 of 2023, and on Friday it definitively broke below that level for the first time. After comments from Treasury Secretary Besson who said that the economy needed to go through a detox period and said there is no Trump put, suggesting that the administration is willing to take some short-term pain while pushing forward with their policy changes.
Speaker 1 (01:04):
Now also ahead of the open, we had the non-farm payrolls, which came in better than feared with 150,000 jobs added to the economy not far from the 168,000 average over the last year. Now, the underlying details were mixed with declines in jobs in retail and leisure sectors, but a pickup in goods producing jobs. Now, with Doge in mind, there was a moderation in government jobs, which fell to 11,000 from 44,000 with federal jobs declining by 10,000. Now this will likely increase in the coming months. Now, the household survey painted a more negative picture showing a decline of 588,000 jobs. But keep in mind, this survey has been much more negative than the establishment survey over the last year. Now, this caused the unemployment rate to tick up to 4.1%, and some of the other leading indicators like the workweek and temp hiring were also on the weak side.
Speaker 1 (01:57):
Now, wages did moderate up only 0.3% after a big jump in the previous month. Now, this report is similar to what we've seen in prior months pointing to a moderation in hiring, but did not suggest a serious deterioration. Now, before entering the media blackout window on Friday Chair, Powell spoke in the afternoon delivering a consistent message saying that the committee is in no hurry to change policy as it waits to see the impact of tariffs, but did suggest that the Fed will be ready if need be. Now, that did help Markets stabilize a bit around noon, and as European markets close, the s and p 500 rallied over 2% off the lows to close just above its 200 day moving average yet again. Unfortunately, that bounce was short-lived as there was another manic Monday with the s and p 500 reversing all of Friday's bounce led by the mega cap tech stocks with the NYSC Bank plus index down nearly 5% and markets have been struggling to find their footing throughout the week.
Speaker 1 (02:58):
Now, the tariff situation continues to evolve with a 25% increase in steel and aluminum tariffs going into effect, which has led to another round of tit for tat responses with the EU and Canada, which is not helping sentiment ahead of the approaching April 2nd reciprocal tariff deadline. Now this week for the first time, there were some major companies that cut their Q1 guidance, specifically citing a reduction in consumer and corporate confidence. Now, this is one of the issues that the market is facing now, as we discussed coming into this year, not only were markets trading at elevated multiples based on historical averages, but there was also quite a bit of optimism that earnings were about to inflect higher with estimates for EPS growth rates of 15% year over year for companies in both the s and p four and 500. Now, despite a very solid Q4 earnings season, companies seemed to err on the side of caution issuing conservative guidance given the uncertain environment.
Speaker 1 (03:56):
Now, this did lead to some negative revisions to those estimates, which have now fallen to about 12% for the s and p 500 and have been cut all the way down to 9% for the mid caps. We're only about a month away from the start of Q1 earning season, so we're getting into the prime pre-announcement window. If we see a wave of negative pre announcements, those estimates will need to continue to move lower. Now, on a positive note, this week's inflation data has come in better than expected on a month over month basis. Both headline and core CPI we're up about half of the level of last month and down to 2.8 and 3.1% on an annualized basis. Now, this morning's PPI numbers also came in better than expected. However, this has not led to the relief rally some had hoped for. This is partially related to the fact that some of the inputs that feed into PCE, the Fed's preferred gauge of inflation aren't moving lower.
Speaker 1 (04:49):
Now on the margin, this data is positive from a Fed perspective, but won't change their current stance. And with the recent move lower in yields, markets have already significantly repriced. Now, as I'm recording on Thursday afternoon, markets are near the lows for the week with most major indices down around 4%. The s and p 500 has now officially entered a correction falling 10% from its all time high. Markets have not been able to hold any sustainable balance with every rally being sold. In fact, it's been almost a month since there's been back-to-back gains for the index. Now, there continues to be quite a bit of systematic de-risking, but at some point that will run its course. Markets are starting to show some signs of getting into short-term oversold conditions. With RSI moving below 30 for the first time since October of 2023, and the VIX futures curve has also moved into backwardation, which means that traders are paying more for near-term protection a condition that has historically proceeded at least a short-term bounce.
Speaker 1 (05:52):
Now, at the same time, the index has reversed all of the Q4 gains and is retesting the July highs. Now, as we look out to next week, it's going to be a very busy and important week. The deadline for the potential government shutdown is this weekend with a stopgap funding bill now sitting in the Senate where it'll need democratic support to pass. On Friday, the University of Michigan sentiment survey will be released with a focus on inflation expectations, and next week begins with retail sales. Now, there are some key rate decisions from the Federal Reserve and the BOJ and Nvidia has its AI Developers Conference with Jensen Wong's keynote on Tuesday. There are also multiple sell side investor conferences, so we could get some more corporate updates in the weekends with a big liquidity event as its options expiration and the s and p quarterly index rebalances. And there is no reason to believe that the whirlwind of headlines coming from Washington will slow down unless the administration starts to focus on filling out their brackets. But once again, thank you for spending some time with us today. Remember, you can watch market storylines on tv.nyc.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 Rein King. Have a great weekend and get ready for the madness.
Speaker 2 (07:13):
That's our conversation for this week. Remember to rate, review and subscribe wherever you listen and follow us on X at Icehouse podcast from the New York Stock Exchange. We'll talk to you again next week inside the Ice House. Information contained in this podcast was obtained in part from publicly available sources and not independently verified. Neither I nor its affiliates make any representations or warranties expressed 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 proceeding conversation may have been edited for the purpose of length or.