Market Update

DOW 49,358 (+117), S&P 500 6,881 (-37), Russell 2000 2,598 (-51), NYSE FANG+ 14,687 (-416), ICE Brent Crude $69.46/barrel (+$2.13), Gold $4,958/oz (+$23), Bitcoin ~73.0k (-3105)

• Semi’s join software at the sell-off street fair
• Top heavy weakness masks rotation to other areas
• Oil higher as US-Iran talks stumble
• More mega cap earnings coming up
• 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:
Yesterday the S&P 500 began to slip just after trading began and continued fading for the rest of the morning. News of an update to Anthropic’s AI offering brought the shouting about software displacement to a full-scale scream. Software names sold off overseas, which then quickly moved to the US and across industry verticals. Tech was easily the worst sector, dropping 2% with software seeing the worst of it. The IGV software ETF was down almost 5%. Comm Services was another laggard. The S&P finished down 0.8% but was down as much as 1.6% at its lows, coinciding with a bounce after briefly trading below the 50d ma, after news of the passage of funding to end the partial government shutdown. Energy was the best sector as oil rose, while Materials and Staples also gained. Of note, the equal-weight’s losses were more modest (-0.3%) and the Russell gained 0.3% in the midst of the SAAS-pocolypse. There’s a lot going on. To help you make sense of all the craziness, from metals to AI, have a listen to Michael’s recent appearance on the Full Signal podcast.

This morning the S&P 500 opened slightly higher but wandered lower throughout the session, following Tech’s lead. AMD earnings last night played a big part. Despite beating numbers and guiding above, the stock was down ~10% in the pre-market and that weakness continued. 

After yesterday’s software puke, the market apparently still hasn’t gotten everything out of its system as the IGV ETF is trading down another 3%, though its less bad than yesterday. The real unfortunate part is that semis are under broad pressure after AMD’s (-15%) print. The ICE Semi index is down ~5%. It’s another big night for earnings which will include Alphabet, and Amazon reports tomorrow night.

Once again though, a look under the surface reveals a different environment. The S&P is down 0.7% trying to hold onto its 50d ma ~6876 (it bounced off it yesterday). However, the equal weight is basically the mirror image, up 0.6%. Mid caps are slightly lower while there’s some interesting divergence in small caps as the S&P 600 (profitable-only) is flat-to-higher while the Russell 2000 is down almost 2%. Transports are a standout today and this week, with rail and freight/logistics names trading well.




 
Besides Tech, Comm Services is lagging as the megacaps slide 2-3%. Similar issue in Discretionary with Tesla down 7% and Amazon down 3% ahead of earnings tomorrow night. Markets took another leg down after Axios reported that nuclear talks with Iran are collapsing. That helped put a bid in crude and sent Energy to the top of the sector performance list. Other top performers include defensively-oriented Staples, Healthcare (Lilly’s 10% rip helping shrug off Boston Scientific’s slide) and Real Estate, despite yields slightly higher.

 

 
There were multiple geopolitical and trade updates today. President Trump and China’s President Xi held a phone call this morning. According to Trump, they spoke about China potentially buying more agriculture and energy from the US in a warmup to the scheduled meeting between the two in April. The US announced plans with Japan, Mexico and the EU to develop policies and partnerships to address critical minerals vulnerabilities. That’s not helping the group however as most names are down 5-15%.

Treasury Secretary Bessent appeared before the House Committee on Financial Services and got into some heated discussions. Almost as fun as watching British parliament tee off on each other on C-SPAN. He was pressed on previous comments about tariffs and inflation, eventually saying his prior comments that tariffs were inflationary were mistaken. Among other comments:

• “…the Federal Reserve has to maintain credibility and be like Caesar’s wife, beyond reproach.”
• The administration is “moving toward Fannie and Freddie eventually leaving conservatorship” but there’s not timeline.
• In a discussion about Trump’s proposal to limit credit card interest rates, he said banks could reduce rewards on their credit cards to lower rates.
• Reiterated prior statements that the administration “always support a strong dollar policy”.

ADP employment data this morning took the place of yesterday’s JOLTS data delay (government shutdown). 22k jobs added were below consensus and the prior month. Education and Health Services added 74k jobs, while Professional and Business Services shed 57k and manufacturing shed 8k. Mid-sized firms added jobs 41k jobs while large employers shed 18k and small employers were flat. Treasuries didn’t react too much to the report, but right after, the detailed Treasury refunding schedule came out. While it was as- expected, the long-end rose about 2bp as markets contemplate the potential for more duration to eventually hit the market. The US Dollar Index is relatively has moved higher  after taking a pause from recent gains yesterday. The BLS will publish the delayed JOLTS report tomorrow (10am) and the January employment report and CPI on February 11 and 13, respectively.  

Government Yields

• US 2yr -2bps to 3.56%, 5yr -0bps to 3.83%, 10yr +1bps to 4.28%, 30yr +2bps to 4.92%
• USD index: +$0.25 to $97.56

ISM Services was inline with last month’s downwardly revised 53.8 reading and a bit higher than consensus. The print follows up a strong ISM Manufacturing PMI on Monday. Business Activity and New Orders rose, prices ticked up slightly while employment fell slightly.
           
       
 
Europe is trading higher outside of Germany. Not much of a bounce in software/tech but Industrial and autos are mostly higher. Europe CPI and PPI was about inline and declined from last month. Japan’s Nikkei fell ~1% overnight with large caps/tech/growth largely responsible for the decline, echoing US action yesterday. Meanwhile Industrials/Materials were bid with names like Mitsubishi Materials, Sumitomo Heavy and Sumitomo Chemicals up 5% or more. China was mostly higher but tech names were under pressure here as well.

Metals continued to rally after the violent correction Friday/Monday but are well off their highs. Crude moved higher with Iranian tensions heating up again. Last night’s API inventory data showed a big 11M barrel draw, well above consensus, but that disparity wasn’t unexpected due to the recent winter storm. The DOE print showed a much lower draw this morning. The first day of the US-brokered Ukraine-Russia talks ended in Abu Dhabi, and is expected to continue on Thursday.  Nat gas is modestly higher and the recent volatility has normalized since Monday. Bitcoin and Ethereum continue lower, with $70k now firmly in sight for Bitcoin.
 

 
Earnings:

• After-Market: AFL, ALGN, ALL, ARM, ATEN, AVB, BKH, CCI, CCK, CLB, COHR, CPAY, DGII, EG, EGP, EQH, ELF, ESS, FMC, FORM, FR, GL, GOOGL, HP, KLIC, MAA, MC, MCK, MCRI, MET, MUSA, MWA, NOV, OHI, ORLY, PTC, QCOM, RAL, REXR, RNR, RRX, SITM, SNAP, STE, SYM, TTMI, UGI, VCTR, WEX
• Pre-Market (Thrs): AB, ABG, AGCO, ARES, ARW, BMY, BTU, CAH, CARR, CI, CMS, COP, EL, ENR, FCFS, HAE, HII, HSY, ICE, IDCC, IQV, ITT, KKR, LIN, LNC, LQDT, MDU, MMS, MTSI, OMCL, OWL, PBH, PTON, RL, ROK, SNA, TPR, WEC, WMG, XEL, XPO
• After-Market (Thrs): AFRM, AMZN, AOSL, BE, BILL, BYD, COTY, CPT, CUZ, DLR, DOCS, EHC, EQR, ESE, FLS, FTNT, G, GEN, HUBG, ILMN, KN, MCHP, MOH, MPWR, MSTR, MTD, NVST, NWS/a, PCTY, PECO, PI, POST, POWI, PTEN, QLYS, RBLX, RDDT, REG, RGA, SYNA, UNM, VRSN, VTR, WERN

 
Economic Data:
US:

• API Crude Inventories: -11.1M vs 0.7M cons, prior -0.247M
• Mortgage applications: -14.4% vs prior -0.4%
  • Refis: -4.7% vs prior -15.7%
  • 30yr rate: 6.21% vs prior 6.24%
• ADP Monthly Employment Change: 22k vs 48k cons, prior 37k
• Final Services PMI: 52.7 vs flash 52.5
• ISM Services: 53.8 vs 53.5 cons, prior 53.8
• EIA Crude Inventories: -3.455M vs -2M cons, prior -2.295M

Global:

• Final Japanese Services PMI: 53.7 vs flash 53.4
• Final Australia Services PMI: 56.3 vs flash 56.0
• China RatingDog Services PMI: 52.3 vs 51.8 cons, prior 52.0
• Germany Final Services PMI: 52.4 vs flash 53.3
• Europe Final Services PMI: 51.6 vs flash 51.9
• Europe CPI y.y: 1.7% vs 1.7% cons, prior 2.0%
  • Core: 2.2% vs 2.3% cons, prior 2.3%

Europe PPI m.m / y/y: -0.3% / -2.1% vs -0.3% / -2.3% cons, prior 0.7% / -1.4%