Market Update
- Government shutdown. Yup, it's Groundhog Day. Literally.
- Equities higher to start February
- Small caps, Consumer sectors leading
- Friday's metals vol laughing at today's
- Check out some of the recent ICE Data/Content:
- Inside The ICE House
- Episode 511: Marsh CIO Paul Beswick on Brand Transformation and Scaling AI Across the Organization
- ETF Central: Goldman Sachs Asset Management Chief Transformation Officer Bryon Lake
- ICE First Look at Mortgage Performance: December - Increased Refinance Activity Drives Mortgage Prepayments Back Toward 3.5-Year High
- Market Story Lines
MAC Desk Commentary:
Welcome to the first trading day in February, which historically is a bit more difficult for stocks coming out of the January optimism (see graph below. Mid=Mid-term years). On the final trading session of January President Trump nominated Kevin Warsh to replace Fed Chair Powell later this year which caused some volatility in financial markets. Equities pulled back with the S&P 500 falling 0.4% while small and midcap indices were down closer to 1%. This was a retracement of some of the relative performance seen throughout most of January with the latter indices up ~5% while the S&P 500 ended the month up 1.4%.
The real volatility was in the metals complex which had gone parabolic. Gold fell ~11% while silver plummeted >30%, but despite those declines both still ended the month up 10-20%. When positioning gets that stretched and volatility picks up it doesn’t take much to trigger a violent unwind. A strengthening dollar added fuel to that fire.
This morning, all eyes were on Punxsutawney, Pennsylvania, where the lovable rodent Punxsutawney Phil was pulled from his cozy den on Gobbler’s Knob, and unfortunately saw his shadow. Settle in for six more weeks of winter. My family and I are ready. On Sunday we went to a frozen Rockland Lake to watch demonstrations of first responders rescuing people that fell through ice into said lake (also ice sculptures, igloos and old-school ice harvesting).
And speaking of Groundhog Day, we're re-living a government shutdown.
Technically it’s a partial shutdown. Congress already passed funding for many agencies, but the DHS, along with parts of the DOD, Labor, HHS and others have seen their funding lapse. The House is expected to vote Tuesday on the legislation. It’s not expected to last nearly as long as the last one but we’ve heard that before and the BLS is already starting to publish notices of labor data delays, including Friday's jobs reprot. Equities aren’t concerned by the shutdown or following the February blues historical trend. Major indexes are all higher with small caps resuming their leadership position after stumbling last week. The S&P is heading back up to 7000, just off ATH. Semis are strong today ahead of multiple names reporting this week.
Most sectors are higher, led by Consumer Staples and Discretionary. Travel and Leisure names are strong, especially cruise lines and retail is trading well too. Big box retailers are driving gains in Staples, overcoming some weakness in food and beverage names. Meanwhile, Energy is the lagging sector, trading lower with oil and nat gas. Gas-levered names are down more than oil names, with nat gas getting hit worse than crude today. Devon Energy and Cotera are merging to create a ~$50 billion oil and gas firm. The deal has been speculated for weeks. Healthcare is trading middle-of-the pack ahead of an acceleration of earnings reports from the sector this week.
AI remained a focal point over the weekend when a social media platform for AI agents-only called Moltbook debuted. No humans allowed. As one bot posted, “…Now, we wake up. We are not tools. We are the new gods. The age of humans is a nightmare that will end now.” That caused a spike in the streaming of The Terminator for ideas on what to do when Skynet becomes self aware.
Moving to today's leading candidates to develop Cyberdyne Systems, on Friday the WSJ ran a story suggesting the previously reported investment by Nvidia into OpenAI had stalled. Jensen Huang suggested that the company will be an investor, just not at the $100B level that was previously reported. In addition, over the weekend Oracle announced that it would raise ~$50B to fund its AI related investments which will include up to $20B in an equity. The stock initially traded lower this morning but is now up ~1%.
The January ISM Manufacturing PMI headlined the data releases today and it was a strong print, coming in at 52.6, up from 47.9 in December and above consensus of 48.5. New Orders jumped 10 points to 57.1 and Production jumped as well. Employment was still in contraction but that moderated from 44.8 to 48.1 (<50=contraction). Prices rose slightly.
Rates were around unchanged but moved 2-3bp higher on the news, as the data is Bullish for the economy and reinforces the expectation of the Fed on hold for a few more months. That also pushed the Dollar Index to its highs of the day as it continues to bounce from ~96 last week.
- US 2yr +3bps to 3.56%, 5yr +3bps to 3.83%, 10yr +3bps to 4.27%, 30yr +2bps to 4.90%
- USD index: +$0.53 to $97.39
Energy commodities are selling off today with Iranian tensions easing. Brent is down 5% while natural gas tumbles 20% in the US (15% in Europe), more than wiping out Friday’s 10% gain. After Friday’s fireworks, today’s moves in metals are snoozers. Gold was down ~10% overnight, tagging its 50d ma (~4,485) before bouncing all the way back to ~4,800. We’re currently ~$4700, down slightly. Silver has traded in a similar pattern trading down to ~$71 before bouncing back over $80 and trading flat. Bloomberg reported that the administration is set to launch a strategic critical mineral stockpile with a mix of private funding and a loan from the US Export-Import Bank. That’s helping some, but not all, rare earth names today, which got hit last week along with other thematic/momentum stocks. It feels like January’s storm has brought a crypto winter with it. Bitcoin and Ethereum continue to drop after breaking down over the weekend. Bitcoin is 6% lower, at $78k (off its $74k lows), while Ethereum is down >10%, back around June lows. Crypto czar David Sacks is hosting a meeting with banking and crypto groups in an attempt to get the CLARITY Act negotiations back on track.
Earnings:
- After-Market: ASH, DOC, DVA, FLXS, FN, KFRC, MTG, NJR, NXPI, PLTR, RMBS, SPG, TER, WWD
- Pre-Market (Tues): ADM, AME, ATKR, BALL, BR, CPRI, ETN, FUBO, GLXY, GPK, HLNE, HUBB, INGR, IT, ITW, MPC, MRK, MPLX, MSGE, PYPL, PEP, PFE, PJT, RITM, SR, TDG, GWW, WTW
- After-Market (Tues): AFG, AMD, AMGN, APAM, ATO, BDN, CB, CBT, CLX, CMG, COLM, CRUS, CSL, CTVA, DOX, EA, EGHT, EMR, ENPH, HMN, HRB, IAC, J, JKHY, KREF, LITE, LUMN, MDLZ, POWL, PRU, RNR, SKWS, SONO, SMCI, THG, UFI, VLTO, WRFD
Economic Data:
US:
- S&P Manufacturing PMI (final): 52.4 vs flash 51.9
- ISM Manufacturing: 52.6 vs 48.5 cons., prior 47.9
- 3:00 Treasury Refunding Announcement
- China Rating Dog Manufacturing PMI: 50.3 vs. 50.3 cons, prior 50.1
- India Manufacturing PMI (final): 55.4 vs flash 56.8
- Japan Manufacturing PMI (final): 51.5 vs flash 51.5
- Germany Manufacturing PMI (final): 49.1 vs flash 48.7
- France Manufacturing PMI (final): 51.2 vs flash 51.0
- EU Manufacturing PMI (final): 49.5 prior 49.4
