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Market Wrap

Traders and investors alike let out a collective groan almost as loud as Kansas City Chiefs fans did on Super Bowl Sunday once they saw yesterday’s inflation print. While not a blowout number, it made a clear enough statement to markets that they should take Powell’s comments that “we do not need to be in a hurry to adjust our policy stance” to heart. Still, while the S&P 500 index opened down 1.02%, it, and other broad equity indexes clawed their way higher throughout the day. The Russell 2000 fell 0.87%, the Dow shed 0.50%, and the S&P 500 ended the day 0.27% lower while the Nasdaq Composite managed to break into positive territory ending 0.03% higher.

Sectors were lower across the board except for Communication Services, which posted a 0.11% gain on the backs of Meta Platforms (META) and Netflix (NFLX) which combined to contribute to just under 400% of the sector’s return. The remaining sector results ranged from -0.02% (Consumer Discretionary) to -2.41% (Energy). Volatility eased slightly as the VIX closed at 15.89 but we did see treasuries trade lower, pushing the 10-year treasury yield to 4.60% and gold continued its march to $3,000 trading at $2,909.10/oz overnight. Oil also reacted, over 3% lower on the combination of continued excess inventories and lower expected demand given the further delay in rate cuts.

The Tematica Select Model Suite saw a mixed day, led by the now familiar duo of Cloud Computing and Nuclear Energy & Uranium, followed by Luxury Buying Boom. Core Holdings and EPS Diplomats ended the day essentially flat while Rebuilding America and Homebuilding & Materials lagged. Space Economy fared the worst as Globalstar (GSAT) traded 13% lower the first day after its 1:15 reverse split, as traders sent a clear message to company management regarding valuation.
 

Reciprocal Trump Tariffs to Trump January PPI Data

Equity futures point to a rebound following yesterday’s January CPI-fueled move lower and the ensuing comment from Fed Chair Powell the Fed has more work to do. Given the lead time between the Producer Price Index (PPI) and the consumer-facing one, the market will be drilling down into today’s January PPI report to get an advanced look at what February and March CPI may look like. On a year-over-year basis, core PPI is expected to dip to 3.3% from 3.5% in December. Such a move would make it the lowest reading since November. To some extent, because of recent tariff action and the expectation President Trump will announce reciprocal tariffs today, the impact of the January PPI report could be more muted.

As we see it, next week’s Flash February PMI report could bring more insightful findings when it comes to inflation and other tariffs. We recognize that the report may not fully reflect Trump’s actions expected later today or ensuing responses from other countries. But it’s hard to see how upcoming inflation data gets back on track toward the Fed’s 2% target. We continue to think that the likely scenario and Trump calling for lower interest rates as tariffs are put into action sets up a potential showdown between Powell and Trump. Caught in the crosshairs will be the market and potentially the economy.

As we look to puzzle through the impact of upcoming tariff announcements, we’ll naturally read through them but we will also be collecting comments from companies as they report their quarterly results as we move into the final stages of the current earnings season. It will skew toward retailers and retail-facing companies, and what they say about product supply, input costs, and margins will be of more than passing interest to us.

Helping set the stage for those upcoming reports is Friday’s January Retail Sales report. Recent employment and wage data indicate real wage gains have persisted, but revolving credit, largely a reflection of credit card debt, increased at an annual rate of 20.2% to $1.382 trillion in December. That helps explain the strong end-of-year finish in the December Retail Sales report, but it also suggests we could see consumers being more thrifty at the start of 2025 as they look to whittle down those credit card bills. The market consensus calls for January Retail Sales to dip 0.1% on a sequential basis.

While the market waits for today’s PPI report and Trump’s reciprocal tariff announcement, it will contend with another wave of quarterly earnings. Among the ones we’ll be assessing and collecting data points for our various targeted exposure models described below are American Electric (AEP), CyberArk (CYBR), Duke Energy (DUK), Herc Holdings (HRI), Lincoln Electric (LECO), and Molson Coors (TAP). The roster for that activity after today’s market close shifts to Airbnb (ABNB), Applied Materials (AMAT), Digital Realty Trust (DLR), Motorola Solutions (MSI),and Palo Alto Networks (PANW).

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