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EUROPE OVERBOUGHT - US OVERSOLD!

DEFENSIVE ROTATION COMPLETE - TIME FOR A BOUNCE??

THE CYCLICAL v DEFENSIVE ROTATION 

03-06-25

We updated the chart above which we highlighted previously (Last Weeks Chart Link) to shown how quickly the markets have rotated to Defensives versus Cyclicals.

RSI suggests the bottom is in, Sentiment says maybe not yet though the average stock is off 30% from highs. The vol Term structures (chart right) suggest we may initially get a bounce but the lows are likely to be retested before heading higher. The markets are generally oversold and the all-important CTA community has de-risked, but certain aspects of sentiment in general, and gross leverage among hedge funds in particular, make the overall tactical backdrop messy and absolutely not a clear-cut signal.

JPM's head trader Elan Luger:

"the bottom line for me: yes we are technically oversold. Yes we are very close to a bounce (I like Financials specifically alts best for a long trade + Mag 7 + Utilities)…but we are in a new regime that warrants a sell rally mentality more than a buy dip mentality" 

CHART RIGHT:

The gap between strategists' SPX target and SPX is very wide. Market too bearish, or strategists too bullish?

Maybe the gap shrinks, from both "sides"... 

TECHNICAL ANALYSIS

THESE WEEKS INDEX (See Prior Weeks for Links to Real Time Live "Grey" area charts below)

NEW IMAGE CHANGES ARE LABELED WITH A BLUE TRIPLE ***STAR***

OLD IMAGE CHANGES ARE LABELED WITH A RED TRIPLE ***STAR***

OLD IMAGES REFLECT MINIMAL CHANGE, but Narrative is ALWAYS updated.

REMEMBER: SIMPLY CLICK YOUR LIVE SUBSCRIBER LINK TO SEE THE LATEST UPDATED LIVE CHART.

1- US EQUITY MARKETS

IT WAS ANOTHER TUMULTUOUS WEEK!!

A 10% correction in 20 days, the 5th fastest correction in the last 75 years (fastest ever was 8 days during the onset of Covid – 2/27/20)

THE TRIGGERING SEQUENCE

1. VALUATIONS: Concern with Mag-7 sustaining rate of sales growth and historic level of margins
2. ROTATION: Rotation begins to S&P 500 493 and cheaper Euro and European bank stocks.
3. DOLLAR WEAKNESS: Weakening USD with falling US stocks forces European to chase DAX & Military Build up stocks
4. GROWTH: US Economic growth becomes an increasing concern primarily on the worry of Tariffs and Trade Wars.
5. RECESSION: A late 2025 US Recession increasing;y on investors radar

The Prediction Markets (chart above right) were early and highly accurate in predicting a Trump victory. They are rapidly seeing the betting increase for a Recession ahead!

GROWTH => STAGFLATION => RECESSION

THIS IS NOT THE START OF A BEAR MARKET FOR US STOCKS

STILL MOST LIKELY ONLY A INTERMEDIATE DEGREE "WXYXZ" CORRECTION

More pain may be in stocks (after a bounce) as the current “down-in-yields/down-in-stocks” move is ominous, and very 2000, 2002, 2008. Buy SPX @ ~5300 in late Spring

REASONS TO CONTINUE TO BE FEARFUL:

1. Growth Concerns (payrolls + ISM manuf.. follows weak confidence readings)
2. Tariff Fatigue magnified by thematic re-pricing in AI
3. Global Complexity (Ger & Fra Yields breaking out + China higher again on JD, BABA QwQ-32B AI Model)
4. Technicals Weak (SPX flirting with 200dma 5732, counterbalanced by most major indices & single stock bellwethers approaching technically "oversold" levels)
5. Systematic Supply (CTAs have sold almost $60bn of US equity delta in the last week, ~30bn SPX)
6. Positioning Elevated (HF Gross Leverage rose +1.1 pts this week and sitting in 100th percentile vs past 1-year // Nets remained ~flat and in 47th percentile vs past 1-year)
7. Liquidity very challenged making new lows
8. LO Risk Reduction (seen in relative out-performers such as HCare, Utilities, & Semis)
9. Consumer Woes (think: ANF, FL, ROST, VSCO, Cruise lines, etc.)
10. Poor Seasonality (bounce set up for 3/14)

YOUR DESKTOP / TABLET / PHONE ANNOTATED CHART

Macro Analytics Chart Above:   SUBSCRIBER LINK

YOUR DESKTOP / TABLET / PHONE ANNOTATED CHART

Macro Analytics Chart Above:   SUBSCRIBER LINK

SPX CASH

CHART BELOW NOTES:

YOUR DESKTOP / TABLET / PHONE ANNOTATED CHART

Macro Analytics Chart Above:   SUBSCRIBER LINK

SPX cfd

NOTES - CHART BELOW:

YOUR DESKTOP / TABLET / PHONE ANNOTATED CHART

Macro Analytics Chart Above:   SUBSCRIBER LINK

S&P 500 - ANALYTICS

YOUR DESKTOP / TABLET / PHONE ANNOTATED CHART

Macro Analytics Chart Above:   SUBSCRIBER LINK

RUSSELL 2000 - ANALYTICS

YOUR DESKTOP / TABLET / PHONE ANNOTATED CHART

Macro Analytics Chart Above:   SUBSCRIBER LINK

YOUR DESKTOP / TABLET / PHONE ANNOTATED CHART

Macro Analytics Chart Above:   SUBSCRIBER LINK

MATASII BANK INDEX - ANALYTICS

THE EURO BANK INDEX CONTINUES TO OUTPERFORM

YOUR DESKTOP / TABLET / PHONE ANNOTATED CHART

Macro Analytics Chart Above:  SUBSCRIBER LINK

MATASII FINANCIAL INDEX - ANALYTICS

In one month these flows have reversed and fallen.

YOUR DESKTOP / TABLET / PHONE ANNOTATED CHART

Macro Analytics Chart Above:  SUBSCRIBER LINK

MAG-7 - ANALYTICS

YOUR DESKTOP / TABLET / PHONE ANNOTATED CHART

Macro Analytics Chart Above:   SUBSCRIBER LINK

NVDA - ANALYTICS

2- COMMODITIES

YOUR DESKTOP / TABLET / PHONE ANNOTATED CHART

Macro Analytics Chart Above:  SUBSCRIBER LINK

COMMODITY ANALYTICS

YOUR DESKTOP / TABLET / PHONE ANNOTATED CHART

Macro Analytics Chart Above:  SUBSCRIBER LINK

***SILVER***

MATASII CHART NOTES:

• PRICE - Silver closed Friday at 33.234 down -0.031 (-0.09%) for the day, but up for the week compared to last Friday's close at 32.506.

• DMA - Silver broken above all its' Moving Averages 21 / 50 / 100 /200 DMA to its upper Bomar Band.

• MATASII PROPRIETARY MOMENTUM INDICATOR - The MATASII Proprietary Momentum Indicator shows there is more upward potential before touching overhead resistance.

MARKET LAB

02-17-25: Silver often comes late to the party, but when it finally gets there it can be an unstoppable hedonist.

YOUR DESKTOP / TABLET / PHONE ANNOTATED CHART

Macro Analytics Chart Above:  SUBSCRIBER LINK

SILVER - ANALYTICS

SILVER - 02-17-25

We are seeing the same dynamics with silver as we are seeing with gold. There is a shortage of deliverable physical metal in London after years of EM central-bank hoarding.

Comex silver warehouses in the US are filling up while stocks in London are falling.

THIS WEEK'S MARKET MONITOR

MONDAY

• US equities started the week slumping in the red (SPX -2.7%, NDX -3.8%, RUT -2.7%, DJI -2.1%), wiping out Friday's rally and hitting six-month lows as concerns over the US economy, present/incoming US tariffs and retaliatory tariffs from others. e.g China's latest retaliatory tariffs (effective today) weighed.
• Sectors ex-Utilities & Energy were in the red, with all of the MAG-7 losing ground.
• As such, Technology, Discretionary, and Communications were hit the hardest.
• For Discretionary, pressure came largely by way of Tesla (TSLA) having its worst day since 2020 (-12%) after China vehicle exports tanked in February.
• In FX, the Dollar caught relief from recent heavy selling, prevailing over the CAD amid intensifying relations between Canada and the US, given that the incoming PM Carney showed no immediate plan of removing their tariffs on the US.
• Meanwhile, the Euro was weighed on by a Greens Party official recommending the party's lawmakers to not vote for the spending plan bill, contending it must show investment goes towards climate and the country.
• On Crude, prices were lower by over USD 1/bbl with energy/geopolitical updates taking the backfoot as the subdued demand picture took the reins.
• That said, the US Energy Secretary said he is looking at working with Congress on cancelling mandate sales from oil reserve. In geopolitics, via AFP, Kyiv will propose a truce in the air and sea during talks with Washington in Riyadh.
• Elsewhere, Treasuries were firmer across the curve, with the 10-year yield having its biggest down day since September, -10bps, as risk-off trade lifted the space higher.
• Data in the US was contained to the NY SCE, which saw the 1-yr ahead exp. inflation rise to 3.1% (prev. 3.% in Jan) and consumers expected probability of missing debt payments at its highest level since April 2020.
• For the week ahead, main events take off on Wednesday, with US tariffs on aluminium and steel to go into effect and the release of February CPI, ahead of PPI on Thursday and UoM on Friday.

INFLATION BREAKEVENS: 5yr BEI -3.9bps at 2.432%, 10yr BEI -3.4bps at 2.314%, 30yr BEI -2.6bps at 2.238%.  

REAL RATES: 10Y - 1.9625%

STOCK SPECIFICS:

• Tesla (TSLA): China sold 1.41mln passenger cars in Feb., +26.1% Y/Y; TSLA exported 3.9k China-made vehicles (prev. 30.2k Y/Y).
• DoorDash (DASH), TKO Group Holdings (TKO), and Williams-Sonoma (WSM) to join the S&P 500 at the open on March 24th.
• Novo Nordisk (NVO) weighed on latest Cagrisema data.
• Ford (F): Will provide up to EUR 4.4bln in new financing for German subsidiary.
• Applied Materials (AMAT): Raises Q cash div. 15% to USD 0.46/shr & new 10bln share repurchase authorisation.
• Cognizant Technology Solutions (CTSH): Activist Mantle Ridge has built > USD 1bln interest & believes shares are undervalued.
• QXO (QXO) & Beacon Roofing Supply (BECN) in discussions about a potential combination; QXO would acquire BECN for USD 124.35/shr in cash or ~USD 11bln.
• DexCom (DXCM): Received a warning letter from the US FDA following inspections of Cos. facilities.
• Redfin (RDFN): To be acquired by Rocket Companies (RKT) for USD 12.50/shr or USD 1.75bln; Closed Fri. at USD 5.82/shr.
• ServiceNow (NOW): Reportedly near a deal for Moveworks which could value the firm at ~USD 3bln.
• Apple (AAPL) and Meta (META) likely to face modest fines, not massive fines, for allegedly breaching EU's Digital Markets Act, according to Reuters citing sources.

TUESDAY

• US indices eventually closed in the red on Tuesday (RUT stayed green), albeit well off the earlier highs and lows, in what was a headline-intensive day which drove choppy trade.
• On Trump tariffs, the President initially raised the 25% tariff on all steel and aluminium coming into the US from Canada to 50%, effective March 12th, but this was later revoked after the Ontario Premier announced they are suspending the 25% surcharge on exports of electricity.
• Elsewhere, and also improving risk sentiment through the US afternoon, was the joint US/Ukraine statement on a ceasefire proposal.
• The US State Department said the US and Ukraine took important steps toward restoring durable peace for Ukraine and Ukraine expressed readiness to accept the US proposal to enact an immediate and interim 30-day ceasefire.
• Following this, Trump stated he will talk to Russian President Putin, but it takes "two to tango" and thinks he will talk with him this week but he hopes to have a total ceasefire in the coming days.
• On data, the JOLTS report came in above expectations while the quits rate and vacancy rate increased, but saw little reaction due to it being stale data whilst participants had tariff updates to focus on.
• The Dollar was sold with DXY hitting a YTD trough.
• The EUR outperformed as it was boosted by comments from the German Green party co-leader that they are hopeful of a defence deal occurring this week.
• Meanwhile, JPY lagged as it was hit by Nikkei reporting that the GPIF will not be boosting its holdings of stocks, firmer UST yields also weighed.
• Treasuries were sold on the choppy tariff updates and Russia/Ukraine ceasefire optimism.
• The crude complex was choppy but settled with slight gains as it pared some of Monday's losses amid broader macro sentiment, as opposed to energy-specific headlines.
• Ahead, US CPI and BoC are the highlights on Wednesday, as well as any further rhetoric on Trump Tariffs on Ukraine/Russia.

INFLATION BREAKEVENS:  5yr BEI +0.6bps at 2.441%, 10yr BEI +0.4bps at 2.316%, 30yr BEI +0.4bps at 2.241%.

REAL RATES: 10Y -- 1.9486%

GUIDANCE UPDATES:

Communications

• AT&T (T): Disappointing Q1 adj. EPS view.
• Verizon (VZ): Growth in Q1 will be 'probably soft'.

Airlines:

• Delta Air Lines (DAL): Cut Q1 EPS guidance and lowered revenue growth expectations amid weakened domestic demand due to macro uncertainty.
• American Airlines (AAL): Trims Q1 outlook.
• Southwest Airlines (LUV): Accelerated its USD 2.5bln share buyback programme and to charge for bags, which is offsetting them reducing Q1 RASM view.
• JetBlue (JBLU): Left revenue guidance unchanged, but did lower Q1 capacity down. Shares potentially supported by leaving the top line the same in wake of DAL/AAL cutting.
• United Airlines (UAL): Offered cautious commentary noting they have seen weakness in the demand market, but now expects EPS to be in the low range of forecast range. As such, it didn't cut like other airline peers.

Industrials:

3M (MMM): Continued to add the glum picture, as it expects Q1 organic sales growth between 1-1.5%, with some order deliveries shifting into Q2 amid a cautious macro landscape.

STOCK SPECIFICS:

• Tesla (TSLA): CEO Musk says it is going to double vehicle output in the next two years, and plans to remain CEO.
• Oracle (ORCL): EPS & revenue missed with light Q4 guidance citing investment losses
• Asana (ASAN): Announced CEO succession plan & weak next quarter revenue outlook
• Sonoco (SON): Will raise prices by USD 70/tonne for uncoated recycled paperboard in the US & Canada, effective April 10th.
• Meta (META): Reportedly to be testing first AI training chip
• Kohls (KSS): Profit missed w/ dismal FY25 SSS guidance

WEDNESDAY

• US indices saw gains in a choppy day of trade, and it was ultimately boosted by a soft US CPI report quelling some recent US economic fears, although US growth concerns and tariff uncertainty continue to loom heavily in the background.
• Highlighting the slight reversal in risk sentiment today, was the mega-cap sectors, Technology, Communication Services, and Consumer Discretionary, with NVDA (+6.4%) and TSLA (+7.6%) seeing heavy gains.
• Back to data, US CPI was cooler than expected across the board, although the headline was largely weighed on by a 4% plunge in airline fares, but it won’t feed through to the PCE.
• In reaction, markets saw a broad-based dovish reaction (Tsys upside, Dollar downside), but both Treasuries and the Dollar pared initial moves as focus swiftly went back to global trade, rather than CPI metrics as it was released a day after blanket tariffs imposed by the US.
• In FX, CAD outperformed in wake of BoC, whereby the bank lowered rates by 25bps, as widely expected, with Governor Macklem noting the BoC will be "proceeding carefully" when it comes to the policy path.
• Yen lagged amid yield differentials. In the energy space, crude saw gains as it was buoyed by a turnaround in recent risk sentiment as cooler-than-expected US CPI supported as well as bullish inventory data, although the aforementioned macro woes remain ever-present.

INFLATION BREAKEVENS: 5yr BEI +2.7bps at 2.472%, 10yr BEI +2.1bps at 2.339%, 30yr BEI +2.0bps at 2.262%.  

REAL RATES: 10Y -- 1.9348%

STOCK SPECIFICS:

• Goldman Sachs reduced its 2025 year-end S&P 500 target to 6,200 (prev. 6,500) citing a lower fair-value forward P/E multiple (20.6x vs. 21.5x).
• TSMC (TSM): Approached US chipmakers, Nvidia (NVDA), AMD (AMD), and Broadcom (AVGO) about investing in a JV to operate Intel (INTC) factories.
• Verizon (VZ): US DoT criticised Co. for slow progress on its USD 2.4bln FAA contract.
• Casey's (CASY): EPS & revenue beat.
• Merck (MRK): A federal judge ruled in favour of Merck in a safety lawsuit involving its Gardasil vaccine.
• Inditex (IDEXY): Reported a slower start to Q1 ‘25.
• Walmart (WMT): China summoned Walmart execs to express concerns re. tariff response.
• Tesla (TSLA): President Trump positive mentions.
• HubSpot (HUBS): Upgraded to 'Overweight' from 'Equal Weight' at Barclays, citing Cos. near-term benefit from a price increase, new core customer ramp, and easier compares.
• PepsiCo (PEP): Downgraded to 'Hold from 'Buy' at Jefferies, noting Frito Lay continue to struggle, which will weigh on PEP's multiple.
• Trump's FTC moves ahead with broad Microsoft (MSFT) antitrust probe, according to Bloomberg.
• Tesla’s (TSLA): New Model Y order backlog in China is less than half of what was reported, via Electrek.
• Merck (MRK): Announced positive data from P3 trials that show the investigational, once-daily, oral, two-drug regimen of Doravirine/Islatravir (DOR/ISL) was maintained HIV-1 viral suppression at week 48.
• US FTC asked to delay trial against Amazon (AMZN) over Prime because of 'severe resource shortfalls in terms of both money and personnel' - court hearing.

THURSDAY

• Stocks saw further selling pressure on Thursday, with more trade threats from US President Trump weighing.
• Trump threatened a 200% tariff on alcohol within the EU in response to the 50% EU tariff on US whiskey.
• All sectors were red aside from Utilities, with downside led by Consumer Discretionary and Communication names as the heavyweight stocks took a beating.
• Aside from trade, data and geopolitics took the limelight.
• The US PPI data was softer than expected but offset by upward revisions, while the PCE components were hotter than the prior.
• Meanwhile, both Initial and Continued Jobless claims fell beneath analyst forecasts.
• The data saw two-way price action in T-notes, with T-notes hitting session lows once the data was digested.
• However, the downbeat risk tone reignited the flight-to-quality bid to see T-notes settle higher across the curve.
• On geopolitics, Russian President Putin supported the idea of a ceasefire but stressed that the ceasefire must lead to a final settlement of the conflict and solve the root causes of the conflict.
• Oil prices were lower in response to the geopolitical updates, with selling pressure seen as US Envoy Witkoff arrived in Russia and as Putin responded to the ceasefire proposal, but trade fears and the impact on economic growth hit the demand side of the equation.
• European gas prices were hit after Putin said if the US and Russia agreed on energy cooperation, then a gas pipeline for Europe could be provided.
• The downbeat risk tone on trade fears saw gold prices rally to a peak of USD 2,985/oz, a fresh record high.
• Attention on Friday turns to the US UoM Consumer Sentiment survey and inflation expectations.

INFLATION BREAKEVENS:   5yr BEI -4.8bps at 2.419%, 10yr BEI -3.1bps at 2.304%, 30yr BEI -2.1bps at 2.237%.

REAL RATES: 10Y -- 1.9791%

STOCK SPECIFICS:

• Intel (INTC): Appointed Lip-Bu Tan CEO, effective March 18th.
• Adobe (ADBE): Reaffirmed FY25 & Q2 outlook.
• SentinelOne (S): Light Q1 & FY revenue view.
• American Eagle Outfitters (AEO): Sees revenue decline due to weaker demand & tariff impacts; tariffs could negatively affect margins by USD 5-10mln.
• Dollar General (DG): EPS, revenue & SSS beat; FY guidance light.
• FTC continues probes against Microsoft (MSFT) and Amazon (AMZN).
• UiPath (PATH): Revenue disappointed for the quarter, and Q1 & FY25 revenue guidance underwhelmed.
• UAE official to press US on ability to buy more Nvidia (NVDA) AI chips, Blomberg reports.
• Tesla (TSLA): Warned Trump Administration it's 'exposed' to retaliatory tariffs, FT reports.

FRIDAY

• Stocks caught a bid on Friday, finding some solace after the recent rout that saw the S&P enter correction territory on Thursday.
• The Nasdaq and Russell outperformed, but S&P and Dow both also saw strong gains.
• All sectors were green, with Tech, Energy and Financials outperforming.
• Consumer Staples, Health Care and Materials were the relative laggards.
• Risk sentiment was buoyed overnight with China performing very well on chatter of a PBoC RRR cut, while strong sentiment continued throughout the US session.
• There were no fresh trade/tariff updates on Friday, but the focus was on the UoM Consumer Sentiment survey, which saw headline sentiment heavily miss expectations with downside in both conditions and expectations.
• The inflation expectations meanwhile surged.
• T-Notes settled lower across the curve in risk-on trade while the inflation expectations added to pressure.
• The Dollar saw mild selling pressure while Antipodes outperformed on the risk sentiment, but the chatter of an RRR cut in China was also supportive.
• Havens lagged with JPY also weighed on by soft Rengo wage data.
• The Euro was buoyed after Germany came to an agreement on the fiscal reform package, although there are still some hurdles ahead.
• Crude prices settled in the green as the crude complex benefitted from the positive risk tone.
• Gold briefly rose above USD 3,000/oz for the first ever time, but it failed to hold above the level.
• Next week attention lies on the FOMC and updated dot pots, as well as the SNB, BoE and BoJ rate decisions, while US Retail Sales are due on Monday for another look into the consumer amid fears of an economic slowdown ahead.

INFLATION BREAKEVENS:   5yr BEI +0.2bps at 2.419%, 10yr BEI +0.7bps at 2.308%, 30yr BEI +1.0bps at 2.242%.

REAL RATES: 10Y -- 2.012%

STOCK SPECIFICS:

• DocuSign (DOCU): EPS & revenue beat with better than expected margins FY26 billings guidance impressed.
• Ulta Beauty (ULTA): EPS, revenue & comp. sales topped, but FY outlook was light.
• MGM Resorts International (MGM): Plans to boost profits by implementing cost-saving measures.
• Crown Castle (CCI): Reached agreement to sell its Small Cells & Fiber Solutions businesses for USD 8.5bln.
• Hon Hai Precision Industry (HNHPF): 13% drop in Foxconn net income, driven by weak Chinese iPhone sales & greater investments in AI server production.
• Apple (AAPL): UK & US officials in talks over concerns that Britain is pressuring AAPL to weaken encryption. Elsewhere, Siri Chief calls delays ‘ugly’ in a meeting and promises fixes, according to Bloomberg.
• Tesla (TSLA): Plans to launch a lower-cost Model Y variant, reducing production costs by at least 20% compared to the refreshed version, Reuters reports.
• T-Mobile (TMUS): Downgraded to 'Neutral' from 'Buy' at Citi.
• PepsiCo (PEP): Reportedly near USD 1.5bln-plus deal for soda brand Poppi, according to Bloomberg.

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