Many big tech players couldn't live up to the hype and growth that investors had priced into their stocks. Well, that was Tuesday evening and by Thursday evening all that negativity around valuations came full circle as Meta saw the biggest one-day market cap gain in the stock's history market. So, clearly, many stocks had yet to catch up to the fast-moving AI story. Which in reality will continue to drive growth across the technology sector for the next 5-10 years in varying degrees. Now that being said, at some point these outsized moves will stop, as the market catches up with the AI story, but as of now, I wouldn’t dare try to stand in front of this momentum.
Over the past week, the Federal Reserve came out and held rates steady, no surprise, but pushed hard against the reality of a March rate cut. I wonder how much they knew about the jobs number in advance as they can get figures ahead of the markets. From where I was sitting, I found it surprising how well Powell hugged the FOMC statement and worked hard to keep the market rate cut hopes at bay, at least for another few months. This was in stark contrast to the awful way he handled the December meeting, which was very unprofessional, to say the least. Regardless, turning to the past week, we saw bond traders pulling out their hair as the Fed pushed their rate cut hopes and dreams into the future. The question now is, do we see this trend continuing or is this just a one off? With the data coming out of late, I have a hard time believing we won’t see May get pushed out eventually.
With earnings and the Fed taking the center stage this past week, we can forget what a week it was from an economic standpoint, as many indicators came roaring back. The Manufactuing PMI on Thursday hit highs not seen since October 2022. Also, the Non-Farm on Friday came in at 353k while wages were soaring during the month up some 0.6% vs the 0.3% expected. Granted this is a weird month from a seasonality standpoint for the non-farm payrolls.
I still do wonder if the Fed got the jobs data ahead of time or was this just a clean-up from the December meeting? To close to call in my opinion.
After it was all said and done last week, the odds for a March rate cut got priced out to a 38% chance with the remaining 62% now on a hold. Unless we see data coming in much weaker as inflation continues to fall, this should remain the case, with no rate cut for March. That being said, the odds for a May rate cut soared and while I feel the data hasn’t provided enough to justify one, the reality is the Fed wants to get to an accommodative stance. That said the data this past week makes it awfully tricky to thread the economic needle as any lowering of rates could lead to a further pickup in economic activity and potentially inflation.
Here are the other economic data highlights from the past week:
Average Hourly Earnings (MoM) (Jan) +0.6% vs +0.3% Est.
Factory Orders (MoM) (Dec) 0.2% Vs 0.3% Est.; 2.6% Prior
Michigan Consumer Sentiment (Jan) 79.0 Vs 78.8; 69.7 Prior
Unemployment Rate (Jan) 3.7% Vs 3.8% Est.; 3.7% Prior
ISM Manufacturing PMI (Jan) 49.1 Vs 47.2 Est.; 47.1 Prior
Nonfarm Productivity (QoQ) (Q4) 3.2% Vs 2.4% Expected, 5.2% Prior
Construction Spending (MoM) (Dec) +0.9% vs +0.5% Est.
Employment Cost Index (QoQ) (Q4) 0.9% Vs 1.0% Est.; 1.1% Prior
S&P Global US Manufacturing PMI (Jan) 50.7 vs 50.3 Est.
Construction Spending (MoM) (Dec) +0.9% vs +0.5% Est.
Initial Jobless Claims 224K vs 213K Est.
Continuing Jobless Claims 1,898K Vs 1,840K Est.; 1,828K Prior
Employment Benefits (QoQ) (Q4) +0.7%
ADP Nonfarm Employment Change (Jan) +107K vs +145K Est.
Pending Home Sales (MoM) For December 8.3% Vs 1.5% Est.; -0.3% Prior
PCE Price index (YoY) (Dec) +2.6% vs +2.6% Est.
Core PCE Price Index (MoM) (Dec) 0.2% Vs 0.2% Est.; 0.1% Prior
Core PCE Price Index (YoY) (Dec) +2.9% vs +3% Est.
Pending Home Sales Index (Dec) 77.3 Vs 71.4 Prior
Personal Spending (MoM) For Dec. 0.7% Vs 0.4% Expected, 0.2% Prior
Natural Gas Storage -326B Vs -322B Est.; -154B Prior
New Home Sales (Dec) 664K Vs 645K Est.; 615K Prior
New Home Sales (MoM) (Dec) +8%, Prior -9%
Turning to the bond market, we saw wild swings and a reversal with the Friday employment numbers. On the week, though, the 10-year was down in yield significantly falling by over 12 basis points. Even a wickedly strong job number only helped so much this past week. That being said, I expect bonds to fall in the weeks ahead and believe the 10-year will get back over 4.10% in short order as higher for longer should continue to push yields up.
- Earnings -
We have yet another jam-packed earnings calendar ahead with Caterpillar, McDonalds, and Tyson on just Monday morning. Other key reports are Ford, Enphase, Chipotle, Amgen, and Gild Sciences on Tuesday evening. For the rest of the week, we get important earnings reports from Toyota, Spotify, BP, Fiserv, Uber, CVS, Walt Disney, CloudFlare, PepsiCo, PayPal, Wynn resorts, and Spirit, the company involved in the Boeing supply chain issues. It's another solid week of earnings to trade around this week.
- Equity Market +
Looking at the 10-minute chart of the S&P 500, we can see how we danced around this week, breaking outside both pivot areas. We broke out early in the week to the upside but retrenched on Tuesday further selling off into and after the Fed meeting on Wednesday. The next day, Thursday, it was all reversed and then some, as equities regained many key levels and added to the record highs on Friday. During the week, the S&P 500 showed a 1.38% increase.
The QQQ Trust over the past week on a 10-minute had a very similar reaction to the S&P 500 as the move broke outside the bottom pivot, which then acted as resistance for the next two days before a considerable gap and move higher. We ended the week at an important pivot area, the previous highs, as the index couldn’t quite muster up enough to break out in those last few hours. Over the past week the QQQ Trust moved higher by 1.23%.
The Russell 2000 fell by -0.80% over the past week, as the internals underneath the hood of this rally weren’t the greatest. Many high-beta risk stocks have been dragging their feet as investor shun the small caps in favor of the mega caps. I want to see the out-performance again from the small caps or I believe the further gains will be scarce going into the second half. That being said, the second half of an election year is typically a reason for the markets to outperform as the President gets elected, reducing fiscal uncertainty.
- Commodity Update +
Copper, over the past week, fell back to close under its 50-day SMA at $3.82 but is still over the 200-day sitting currently at $3.78. On the week the metal saw a -0.79% decline.
Silver over the past week fell by -0.53% but the move on Friday was a doozy falling -2.17%. After making solid gains earlier in the week, the commodity dipped into the red on Friday.
Now, even with a weak dollar gold tacked up some nice gains on the week. It ended the day higher by 1.80%, closing at $2053.70 per ounce. This was even after we saw a nice selloff on Friday of -0.84% as the Dollar broke higher.
WTIC got absolutely hammered after a week where we saw a -7.35% decline sparked by Gaza rumors which seemed to point to an agreement to pause the Israel-Hamas war and free civilian hostages captured by Hamas. While we have many cross currents, one factor is the strong jobs number that is bullish for Crude, but there is also a recent renewal of Dollar strength that has held back Crude. So, the push and pull will likely continue, but if the price of Crude breaks below $70 a barrel, it's a big red flag as it rejected the breakout over the moving averages last week.
Turning to the Dollar, the index has found support around the moving averages and closed at prices not seen since early December of last year as all signs point to the US Economy chugging along just fine, thank you very much. The reality is if rate cuts continue to get pushed out, and a resilient economy continues, the Dollar will continue to be a safe haven in contrast to the murkier economies around the globe. The Index closed the week at $103.78, marking a 0.53% increase over the past week.
- Notable on the week -
Over the last five trading days, the sector leaders were:
XLY Consumer Discretionary up by 3.29%
XLC Communication Services up 2.65% (6.49% over three weeks)
XLP Consumer Staples was up 2.12%
Laggards over the past week were:
XLE Energy was down -0.87%
XLRE Real Estate down -0.47%
XLK Technology was up by 0.24%
Zooming in over the past week, we saw record highs on the XLI on Thursday and Friday. Also, the XLY was the top performer on the week breaking out on Friday and is a prime candidate for gains in the weeks that follow. Not to be forgotten, the Consumer Staples (XLP) has been on a serious run over the last few months and is nearing an interesting area, chart below. If we clear the pivot, I think there’s a better-than-not chance the index makes a run at record highs in the weeks and months that follow.
- The Micro Minute -
ADBE - This week I’m just taking a technical look at one of my main watches for the week ahead. Adobe won’t be reporting earnings for over a month and just last week hit new 52-week highs and finished at a multiyear closing high as well. Stock could pull back to around $615 and still be on the uptrend, so there is considerable room for a pullback if this breakout fails. That being said, if support holds above $630 this week, we can see considerable gains as over the last month the stock has been consolidating.
- Major Economic and FED speaker highlights for the week ahead -
Sunday, February 4th
9 pm Fed Chair Powell Speaks
Monday, February 5th
9:45 am Services PMI (Jan) - Consensus 52.9 Prior 51.4
9:45 am S&P Global Composite PMI (Jan) - Consensus 52.3 Prior 50.9
10 am ISM Non-Manufactuing PMI (Jan) - Consensus 52.0 Prior 50.6
10 am ISM Non-Manufactuing Prices (Jan) - Consensus?? Prior 57.4
11:30 am 3/6 Month Bill Auction - Prior 5.210%/4.985%
2 pm FOMC member Bostic Speaks
2 pm Loan Officer Survey
Tuesday, February 6th
10 am IBD/TIPP Economic Optimism
2 pm FOMC Mester Speaks
1 pm 3-Year Note Auction
4:30 pm API Weekly Crude Oil Stock - Consensus ?? Prior -2.500M
Wednesday, February 7th
8:30 am Exports - Consensus ?? Prior 253.70B
8:30 am Imports - Consensus ?? Prior 316.90B
8:30 am Trade Balance(Dec) - Consensus -62.20B Prior -63.20B
10:30 am Crude Oil Inventories - Consensus ?? Prior 1.234M
12:30 PM FOMC Barker Speaks
1 pm 10-Year Note Auction
2 pm FOMC Member Bowman Speaks
3 pm Consumer Credit (Dec) - Consensus 14.90B Prior 23.75B
Thursday, February 8th
8:30 am Continuing Jobless Claims - Consensus ?? Prior 1898K
8:30 am Initial Jobless Claims - Consensus 219K Prior 224K
10 am Wholesale Trade Sales (MoM)(Dec) - Consensus ?? Prior 0.0%
10 am Wholesale Inventories (MoM)(Dec) - Consensus 0.4% Prior -0.2%
10:30 am Natural Gas Storage - Prior -197B
11:30 am 4-week/8-week Bill Auction
12 pm WASDE Report
12:05 pm FOMC Barkin Speaks
1 pm 30-Year Bond Auction
4:30 pm Fed’s Balance Sheet- Prior 7,630B
Friday, February 9th
1 pm US Baker Hughes Rig Count
4:30 pm CFTC Various Speculative Net Positions
- Conclusion -
So last week we had a negative reaction in equities after the first batch of technology earnings. The second tranche of earnings was a different story coming out of Apple, Meta, and Amazon as the tide of news lifted all the boats on Friday. Microsoft and AMD both shrugged off moves lower after earnings based on the pace of spending and growth expected coming out of Meta’s earnings and conference call. Nvidia, which was trading under $610 on early Wednesday morning, closed the week at $661.60 up 8.40%. This was all on the heels of the blowout report from Meta, which drove the mega cap up 20.51% on the week.
Looking ahead, Fed Powell will speak at 9pm tonight, so that will surely be a market moving event coming into the Monday open. Also, we get a couple of bond auctions to watch out for, as this government has been raising money at a furious pace. Outside that we have to watch for the usual suspects with initial claims but also on Tuesday we get ISM services PMI and the Non-Manufactuing. After last week’s surge in manufacturing, it will be good to see what the rest of the economy is at. To finish the week, we have an unusually quiet Friday economically, so watch out for continuation moves, extending of the trend into the close on Friday.
Well, that’s it for this week’s report. Have a wonderful week ahead. Be good. Take care.
Eric