Over the previous week of trading, the recent volatility that we have experiencedpersisted as the major indexes resembled a roller coaster. For the majority of the week the $VIX, more commonly referred to as the market’s ‘Fear Gauge’, traded above 20, which is traditionally considered an elevated state. This continued volatility is largely a result of uncertainty coming out of Washington, particularly related to new tariff policy. Thus far, as the new administration has begun implementing their new policies, the seemingly arbitrary nature in which tariffs have been drawn up & enforced has many investors and business leaders spooked as they do not see clear rules of the road for investing moving forward. This uncertainty is putting downward pressure on a stock market that seemingly wants to go higher but refuses to, until there is some finality and policy clarity regarding tariffs and what to expect. Amid this surge in uncertainty, each of the three major market averages experienced multiple significant selloffs throughout the week. However, it was not all bad over the past week, as there were a handful of bright spots. Despite the choppy trading, the Dow Jones index was able to grind out a nearly 1.00% gain on the week. Additionally, still 57% of S&P 500 stocks are trading above their 200-day moving average, which is largely unchanged from the previous few weeks. Furthermore, looking at the NYSE Advance/Decline Index, this index just continued a consolidation pattern which has been forming over the past month. There was no significant breakdown in this index despite the selling that drove the S&P 500 and Nasdaq Composite to finish decisively in the red on the week. Each of these observations serve as evidence that the selling which is putting pressure on markets is largely concentrated in specific pockets of the market, particularly a few areas that are more heavily weighted, thus having an outsized effect on broader market performance. At present, the S&P 500 is only 2.7% off of its ATH and the market internals are still holding up well in the context of the selling. This factor combined with what developed into a strong Q4 earnings season should provide some support for markets. Once investors are able to get clarity on the tariff front and not have to concern themselves with the threat of an almost daily headline announcing a fresh duty being levied, they will be able to zero back in on the market fundamentals which are still quite good. As this uncertainty dissipates, we expect markets to again become constructive and for this decline to ultimately prove to be a good ‘buying opportunity’. However, until this occurs, we fully anticipate more volatile trading as markets attempt to climb a wall of worry.
Key Events to Watch this Week
- February U.S. Jobs Report
- Initial Jobless Claims
- Three Earnings Reports (CRWD, AVGO, & COST)
- Headline Risk (Tariffs)
As we head into the upcoming week, there certainly will be plenty of fresh data to digest that will keep investors busy. Of the new data expected this week, the principal data will come in the form of the U.S. Jobs Report for February. Investors will be eager to dive into this fresh jobs market data to see if there are any fresh signs of further deterioration in the labor market. Additionally, still related to the labor market, the weekly initial jobless claims report is one worth watching in the weeks to come. As we said last week, this report deserves some further attention due to the significant and ongoing job cuts that are occurring with Federal government employees. We are not mentioning this as a political statement, just simply because of the sheer volume of Federal workers that have been terminated in the past month. Due to these large numbers, should these cuts continue at this pace, this is eventually going to start showing up in macroeconomic data, namely the labor market reports like monthly Jobs reports and weekly initial claims. We began to see this over the past week as Initial Claims came in a good bit higher than analysts were expecting. Because of this, these reports merit further attention in the weeks to come. Now, turning the page to the earnings. Even though Q4 reporting season is by and large behind us as 97% of S&P 500 companies have already posted their reports, there are still a few notable companies that are still yet to post their results. This week investors will hear from three major companies that are on deck. First will be CrowdStrike Holdings, Inc. when they post their Q4 numbers after the market closes on Tuesday. Following this report will be both Broadcom Inc. & Costco Wholesale Corp, both of which will report after the closing bell on Thursday. Each of these stocks are widely tracked by investors so their latest earnings results will surely draw a great deal of attention. Lastly, we are still keeping our eyes peeled for any fresh headlines out of Washington related to tariffs. We of course are not making any trading decisions based on following the headlines. We only continue to point this out because as has been demonstrated numerous times in the past few weeks, these surprise announcements have shown the ability to shift markets quickly. Just this past week, there were several times when the market indexes were attempting to pick themselves up off the mat intra-day only to be rocked late in the afternoon by a fresh headline which resulted in the rally attempt fading into the close. We feel that in the long run, much of this recent headline-related volatility will prove to be just ‘noise’. We are just remaining cognizant that in the short-term they have the ability to move markets.
Thank you for reading this week’s edition of the Weekly Market Periscope Newsletter, I hope you enjoyed it. Please lookout out for the next edition of the newsletter as we will give you a preview of the upcoming week’s important market events.
Thanks,
Blane Markham
Author, Weekly Market Periscope
Hughes Optioneering Team
Recent Comments