Market Update

Good morning,
 
The celebratory mood after the US Hockey Golden sweep quickly evaporated during yesterday’s session as the AI disruption narrative picked up further steam. One of the catalysts adding to the dour mood was a Citrini Research report that made its way around social media pointing to a dystopian not too distant future where unemployment exceeds 10% as AI transforms the economy. Word of caution do not read before bedtime. Comments from Nassim Taleb, author of The Black Swan, discussing software bankruptcies and mispricing of structural risk didn’t help sentiment either.
 
The S&P 500 fell 1% closing right around Friday’s low and just over the rising 100d ma (~6,825). Software continued to be under pressure with the private credit concerns spreading more broadly into financials with the sector falling >3%. Payment processors also got hit hard following the Citrini report. In the afternoon IBM (-13%) became the most recent Claude Casualty after Anthropic said Claude Code could be used to modernize COBOL (Common Business-Oriented Language) which is used in business data processing. Sectors ending the session higher included defensive consumer staples/healthcare, commodity and yield oriented sectors.
 
Ahead of President Trump’s State of the Union address this evening there was a tepid bounce in futures overnight but they have come off of best levels. You can add cautious comments from JPM Jamie Dimon to the current narrative. He tends to have a pragmatic view, this time warning of similarities ahead of the GFC saying some financial firms were “doing some dumb things”. He did say that the company would be an AI winner pushing back against some the claims in the Citrini report about the transformation of payments systems.  
 

 

• VIX: +0.03 to 21.04

 
Meta (unch) and AMD (+10%) announced a partnership to build a 6gw data center using AMD GPUs as part of the deal AM has issued Meta performance-based warrants to purchase up to 160ml shares in the company. This deal comes a week after a deal made with Nvidia. One of the topics expected in this evening’s SOTU speech is President Trump announcing “ratepayer protection pledges” requiring tech companies to pay for increased electricity costs, further addressing affordability issues ahead of midterms. Home Depot (+2.5%) is trading higher ahead of its earnings call. The company put up solid results with an uptick in operating margins though the company left annual guidance unchanged noting the continued difficult housing market.  
 
This morning the weekly ADP 4-week average employment change increased to 12.75k from 10.25k last week. Ahead of the open S&P Case Shiller will be released followed by consumer confidence and wholesale inventories. There are a ton of Fed speakers on the calendar today. Treasuries rallied yesterday with yields retesting last week’s low and they are holding the bulk of those gains this morning. The USD index continues to move higher up ~0.2% trading just above its 50d ma (~$97.75).
 
Government Yields

• US 2yr +1bps to 3.46%, 5yr +1bps to 3.60%, 10yr +0bps to 4.04%, 30yr -1bps to 4.69%
• USD index: +$0.25 to $97.90

 
It was a mixed overnight session around the globe. Mainland China re-opened for the first time since the Lunar New Year and closed modestly higher while the Hang Seng gave back a good portion of Monday’s rally. The PBOC left its 1/5yr Loan Prime rates unchanged as expected. The latest DeepSeek model is expected to be released shortly and there’s a lot of geopolitical tension surrounding it. White House officials reportedly said that it was trained on Nvidia Blackwell chips, in violation of US export controls. The country also added 20 Japanese firms with military ties to its export control list adding to tension between the countries. The Nikkei re-opened after being closed yesterday shaking off initial losses to the end the session in the green. The Yen weakened by nearly 1% versus the USD after reports that PM Takaichi voiced concerns about additional rate hikes in a meeting with BOJ Governor Ueda last week. The Nikkei also reported that the Yen rate check last month was done at the directive of Treasury Secretary Bessent and not requested by the Finance Ministry. India’s Sensex fell >1% giving back yesterday’s gains and then some with IT consulting companies leading to the downside. European indices opened slightly lower but have not veered far from unchanged levels.
 

 
Commodities are mixed. Ahead of the next round of Iran negotiations on Thursday oil remains well bid with ICE Brent up just over 0.5% trading ~$72. The metals complex is the opposite of yesterday with gold/silver pulling back while platinum and copper bounce. Ag is modestly lower. Crypto continues to be under pressure. Bitcoin is just off of session lows down ~2.5% trading ~63k.  Ethereum is down a similar amount holding just over 1,800.
 

 
Earnings:

• After-Market: ACVA, AESI, ALSN, APLE, BBBY, BCC, BSM, BWXT, CNNE, CTEV, CWEN, GNW, HIMS, HLX, IIPR, INVX, JBTM, KEYS, KWR, MAX, OKE, OPAD, OSG, OVV, PAY, PLOW, PRIM, RHP, SGHC, TNC, VVX   
• Pre-Market (Tues): AIN, AMT, AS, AVNS, AWI, BOW, BRSL, CLVT, CYD, DOCN, ELAN, EXPD, FERG, FIS, HD, HSBC, HVT, INFU, KDP, LTH, NRG, NRP, NVRI, NXRT, PERF, PLNT, WLK, WLKP, XHR
• After-Market: AII, AMC, AXON, BXC, CAVA, CSGP, CWH, ECG, EOG, EVH, FSLR, FVR, GDDY, GIC, GMED, GPOR, HPQ, LCID, LTC, MATX MELI,, MOS, MTDR, O, PARR, PSTL, REZI, RRC, RVLV, SEI, SILA, SKT, SPXC, SUI, TALO, TREX, UIS, UVE, VLRS, VRE, WDAY, ZETA

Economic Data:
US:

• ADP Weekly Employment Change: prior 10.25k
• 9:00 Fed Goolsbee
• 9:00 Case Shiller Home prices
• 9:00 Fed Bostic/Collins
• 9:15/30 Fed Waller/Cook
• 10:00 Consumer Confidence
• 10:00 Richmond Fed Index
• 10:00 Wholesale Inventories
• 10:30 Dallas Fed Index
• 3:15 Fed Barkin/Collins
• 4:30 API Oil Inventories

Global:

• South Korea PPI: 0.6%/1.9% m.m/y.y prior 0.4%/1.9%
• China 1/5yr Loan Prime Rate left unchanged at 3% and 3.5% respectively
• EU New Car Registrations: -3.9% y/y prior 5.8%