Market Story Lines

Hello, I'm Michael Reinking, Senior Market Strategist at the NYSE, and this is Market Storylines. Every week we are here to keep you to date on the key trends and events driving global markets. We are recording on Thursday afternoon in a holiday shortened trading week, so let’s dive right in.

Last week Eric left you in the wake of AI disruption wrecking ball which was making its way across sectors. Ahead of last Friday’s CPI report the S&P 500 was down >1% for the second consecutive Thursday, a streak we’re hoping to break today.

The inflation data showed some improvement from the prior month with headline CPI falling to 2.4% from 2.7% on an annual basis, driven by a decline in oil prices and a moderation in food prices. Core ticked down a tenth of a percent from December’s reading to 2.5%. On the goods side, tariff impacted products were mixed with disinflation in autos and apparel while appliances and furniture moved higher. The heavily weighted shelter component, which has been a disinflationary tailwind, moderated from 0.4% to 0.2%. Ahead of the report there had been some concern of a hot reading following multiple years where January inflation jumped, driven by annual price resets. Auto and healthcare insurance have been big upside drivers of this phenomenon in recent years, but both moved lower in this report. That being said the MAC Desk is still in search of anyone whose policy reset lower.

In response to the data, yields moved lower ending the week down 10-15bps across the curve, hitting the lowest level since Q4. Heading into the long weekend equities recouped some of the week’s losses but closed off of the best levels as the S&P 500 failed to reclaim its 50d ma.

While US markets were closed to start the week for President’s Day much of Asia has been closed throughout this week in celebration of the Lunar New Year. Much of the financial press over the weekend focused on the AI displacement debate but the Paul brothers owned social media - with Jake’s emotional celebration of his fiance’s gold medal and apparently healed broken jaw. But he was outdone by his brother Logan who celebrated the record-breaking sale of his Pikachu Illustrator Pokemon card for over $16ml to AJ Scarmucci who said this is just the beginning as he is now on a planetary treasure hunt - but the MAC Desk asks why stop there - when you can go interplanetary. AJ you should make your way to Dok Ondar’s Den of Antiquities.

With signs that there is still some speculative furvor out there futures were under some pressure coming out of the holiday weekend. However, the picture improved after the weekly ADP jobs report showed improvement and as some optimistic headlines about Iran negotiations hit the tape just before the open, but there has been a 180 on that front throughout the rest of the week. Early in the session S&P 500 broke below its 100d ma and retested the late January early February lows ~6,780 before bouncing about 1.5% intraday to end the session around unchanged. Financials, which had fallen 5% last week, led that bounce while mega-cap tech also ended the session higher after the NYSE FANG+ index got within 1% of a 20% peak to trough drawdown, since topping out on Halloween.

This session was emblematic of what we’ve seen throughout the rest of the week on two fronts. First Like the weather outside, where we are finally starting to see sidewalks and grass again around NYC there has been a thawing of the AI winter Eric discussed last week. There has bounce back in some of the industries that sold off on the disruption fears helped by a couple of positive earnings updates and the buy the dip reaction function - but this has been selective. Software and crypto have both stabilized but have been unable to make any real headway. The overhang and a redemption freeze at a Blue Owl fund is weighing on the private credit markets. A word of caution on the thawing, Phil did see his shadow and forecasters are calling for some more snow this weekend so hopefully that correlation breaks.

Despite most major indices trading around unchanged for the week there has been quite a bit of volatility intraday, likely being influenced by the fact that it is an options expiration week. Technicals have also been at play with the S&P 500 ping ponging back and forth between the 50 and 100d moving averages which are separated by about 1.5% but slowly converging. The index remains trapped in the ~200pt range it has been in since the start of the year.

Outside of equity markets geopolitical concerns are once again mounting primarily related to Iran which has pushed oil prices up over 5% this week. The metals complex has continued to consolidate with volatility compressing for the second week.

This week’s economic data was not as impactful as last week but continues to point to a resilient low hire low fire economic backdrop. Durable and capital goods orders came in ahead of expectations with the latter highlighting the continued spending on data center buildouts. Initial claims moved lower to 206k from 227k last week, but this may have been impacted by the holiday. Yields have moved modestly higher this week retracing some of last week’s decline. There was some focus on the Fed minutes with several participants saying they would have supported a two-sided description of future interest rate decisions. This was viewed somewhat hawkishly, but I think it is just a reflection of the divide on the committee and the fact that the tension between the fed’s dual mandate has been moderating.

Before the week is out there are still a couple of catalysts ahead of us. On the economic front Q4 GDP and global flash PMIs will be released. Friday is also this first opinion day at the supreme court since recess so we could get a ruling on tariffs and don’t forget it is options expiration so expect to see some additional volume and volatility especially around the open and the close.

Looking out to next week the calendar is a bit quieter. The consumer will be in focus with major retailers reporting. This will probably be overshadowed by the late cycle tech earnings including Nvidia, Salesforce, Snowflake and Dell. All eyes will remain on the Middle East as President Trump has said a decision will be made within the next 10 days, he also will be giving his state of the union address on Tuesday night.

That’s going to do it for this week thanks for spending some time with us. If you liked today’s episode, please tell a friend or leave a comment wherever you listen to your podcasts. I’m Michael Reinking and we’ll talk to you again next week.