Michael Reinking:
Hello, I'm Michael Reinking, senior market strategist at the New York Stock Exchange, and this is Market Storylines.
Every week we are here to keep you up to date on the key trends and events driving global markets, and we are recording on Thursday morning in a quickly evolving environment. So, let's dive into this week's market storylines.
When we recorded last week, markets were just starting to see the S&P 500 pull back from all-time highs. Now, over the last couple of weeks, we'd been noting some early warning signs of a change in personality in the market with investors starting to move up the quality scale with defensive sectors outperforming. Now, in the middle of the week, we started to see crowded positions, momentum stocks, and cryptocurrencies begin to come under some pressure. However, things really seem to come to a head on Friday, driven by a couple of different factors.
S&P Global Services PMIs fell into contraction for the first time in two years while the University of Michigan Consumer Sentiment Survey was revised sharply lower, adding to concerns about a potential growth slowdown. Now, in addition, a research report started to make the rounds suggesting that Microsoft was pulling back on its CapEx spending, which started to hit the AI infrastructure-related stocks, and there was even some reporting on a new strain of COVID found in a lab in China adding to the weakness.
Now, markets sold off throughout the day while treasuries rallied sharply with yields falling over 10 basis points across the curve. Now, it was options expiration likely adding to some of that downside momentum. Now, the S&P 500 closed down for the fourth Friday in the last five weeks, falling nearly 2%. Now, the index closed just over 6,000 in its fifty-day moving average while small and mid-cap indices ended down around 3%, reversing all of the post-election gains and also closing at a key technical level, right around their respective 200-day moving averages.
Now this week, markets have moved modestly lower, continuing to probe some technical levels. Now, the absolute moves don't really do any justice to the intraday volatility where we've seen sharp intraday reversals on multiple occasions swinging between gains and losses.
In fact, the intraday range in the S&P 500 has been over 1% every day this week, though we're currently down less than that week to date. Now, the index is holding right around its 100-day moving average, which is 59.45, but has been unable to reclaim its 50-day moving average after breaking that on Monday. Now, the overall tone has remained jittery and there continues to be an unwind of speculative assets. Just how far along we are in that process is the big question.
Now, investors had quite a bit to digest this week, including some more key earnings reports, some mixed economic data, and another whirlwind of Washington headlines.
Starting in reverse order, President Trump reiterated this morning that the Canada and Mexico tariffs will be enacted next week, along with an additional 10% tariff on China, which took the wind out of the sails of this morning's rally. Now, that also came on the back of reporting that the administration is considering some more stringent technology export controls with China earlier this week. Now, on the positive side, the House did pass its framework for one big, beautiful bell by the slimmest of margins this week, but there is still a lot of work to be done as it moves to the Senate to get marked up, and the debt ceiling deadline is in a couple of weeks.
Now, things do seem to be moving in a positive front on the Ukraine side of things with President Zelensky expected to come to the White House on Friday to sign a mineral deal.
Now, the economic data this week has been mixed. There was another negative consumer sentiment survey. The growth concerns are emanating from that survey, or soft data, given the uncertainty. Now, the question is whether that uncertainty begins to stifle consumer spending or business investment, and that has not shown up in the hard economic data yet, but it's something to watch closely to see if there is an inflection.
Now this morning, there was an uptick in the initial claims, which moved to 240,000 from about 220,000 last week, but continuing claims held steady. Now, durable goods orders rebounded after last month's declines and capital goods orders, proxy for business spending, came in well ahead of estimates. Now, the retail earnings this week have looked somewhat similar to Walmart's numbers with companies putting up solid quarterly results, but issuing guidance which fell slightly below street estimates. Now, the commentary on conference calls is not suggesting a steep decline in consumer spending.
Now, the other big topic this week has been the AI infrastructure spending, and the headlines continue to suggest that spending is happening, with Microsoft and Amazon both reiterating their spending plans, reports of Meta taking on a new $200 billion data center project, and NRG and GE Vernova announcing plans to build over five gigawatts of natural gas power plants. Now, these headlines all came ahead of one of the most important earnings reports of the quarter, NVIDIA. Now, as the street is largely caught up to the AI demand story, NVIDIA's results weren't of the absolute blowout variety seen over the last couple of years. Now, the numbers were very strong, nonetheless, with a beat and a revenue guidance that was only $1 billion ahead of estimates. Now, there was continued data center strength and very strong demand for its new Blackwell chip. As they've been ramping up that production, gross margins were a touch light, but remain in the low 70%.
Now, commentary from Jensen Wong about the impact of DeepSeek and the future was also very positive. The stock opened up this morning a couple of percent, but couldn't hold those gains, and is now trading in the mid-120s, right around its 200-day moving average. Now, this clearly hasn't cleared the decks in the AI infrastructure stocks, as investors seem to be concerned about a slowdown in that spending and the previous rotation into some of the AI software-related names is still in the process of unwinding.
Now, the market is still struggling to find new leadership. With some of the technical damage done over the last couple of weeks, it is on shaky footing. Now, that being said, the S&P 500 is only a couple of percent off the all-time high and is just in the middle of the post-election trading range. If the index does definitively break its 100-day moving average, that would put a test of the low end of the range, just under 5,800, in play, with the rising 200-day moving average quickly approaching that area, which would actually be a healthy pullback. Now, I'd note that, at this point, credit markets are very well-behaved, so there are no big warning signs flashing there either. Though the VIX does continue to hover in the high teens.
Now, looking ahead to tomorrow, there are some key economic releases with personal income and spending and PCE. It's also the MSCI quarterly index rebalance and President Zelensky is expected to meet at the White House, so it will be an interesting end of the week. Now, next week, geopolitics will remain important with the President's State of the Union address and the tariff deadlines. Now, China's National People's Congress will also be taking place with investors looking for any additional stimulus announcements and expect there to be an exchange of headlines about trade policies.
Now, late cycle tech and retail earnings will continue to be busy. The economic data will include the ISM surveys, so we'll want to see if that confirms some of the recent PMIs and the labor market data, the first of that important hard data we were referring to.
Now, once again, thank you for spending some time with us today. Remember, you can watch Market Storylines on tv.nyac.com, or our YouTube channel, or you can listen every Friday on the Inside the ICE House podcast feed. Thanks for joining me. I'm Michael Reinking. I'll talk to you again next week.
Speaker 2:
That's our conversation for this week. Remember to rate, review, and subscribe wherever you listen and follow us on X, @ICEHousePodcast. From the New York Stock Exchange, we'll talk to you again next week inside the ICE House. Information contained in this podcast was obtained in part from publicly available sources and not independently verified. Neither ICE nor its affiliates make any representations or warranties express or implied as to the accuracy or completeness of the information, and do not sponsor, approve or endorse any of the content herein, all of which is presented solely informational and educational purposes. Nothing herein constitutes an offer to sell, a solicitation of an offer to buy any security, or a recommendation of any security or trading practice. Some portions of the preceding conversation may have been edited for the purpose of length or clarity.
