Weekly Trader's Outlook

If you read last week's blog you might recall that my forecast for this week was "breakout," which I defined as a 2.0% or greater weekly move, either higher or lower, on the S&P 500. Stocks were under significant selling pressure this week and the S&P is currently on track to be down ~2.4% so my forecast turned out to be accurate. Yields on U.S. Treasuries continued to drop this week which appears to be driven by a combination of longer-term economic growth concerns and "risk-off" sentiment from investors. Last week I noted the bearish price action in momentum/spec areas of the market and weakening consumer data and this week we saw more of the same. This week's economic data provided some potential orange flags around the U.S. economy, which included a downwardly revised "nowcast" from the Atlanta Federal Reserve suggesting the U.S. economy will contract this quarter for the first time in several years (more on this in the "Economic Data, Rates & the Fed" section below). So, markets appear to be going through a repricing of risk assets which is driven by growth concerns, and the uncertainty around trade and fiscal policy is adding to the uneasiness. Also adding to uncertainty is a potential shift in the narrative around AI growth, which has been a key pillar in the bull thesis. AI-darling Nvidia delivered a solid "beat and raise" quarter after the bell on Wednesday, but some degradation in margins was poorly received by investors and the stock sold off following the report. The good news from a near-term trading perspective is that there are several potential oversold technical signals, so stocks may be due for a bounce next week (more on this in the "Technical Take" section below). However, on an intermediate-term basis there remains a high level of uncertainty around the economy so traders may want to remain nimble and prepared for higher potential volatility.

At the time of this writing (12:45 p.m. ET), all the major indices are in the green but well off the highs of the day (DJI + 45, SPX + 4, COMP + 15, RUT + 3), so markets remain jittery despite the technical dip buying seen earlier in today's session. Yields on the 10-year are currently at the lowest level since December 10th (4.233%) which suggests the "risk off" investor sentiment is still prevalent. The VIX's move back into positive territory at the time of this writing is another indicator of heightened investor uncertainty. Ukraine President Volodymyr Zelenskyy is meeting with U.S. President Donald Trump at the time of this writing and reports that the meeting has been contentious may be adding to some of the midday selling pressure. Markets will likely continue to be subject to tariff volatility next week as President Trump said that Canada and Mexico tariffs will go into effect on March 4th (Tuesday). Markets will also have the monthly jobs data to digest next Friday and given this week's jump in Initial Claims and increasing concerns about the economy, the report could potentially be met with heightened volatility. From a near-term technical perspective, the potential for a market bounce next week is still alive, but markets may be held captive to headlines and U.S. economic data. As a result, my primary forecast for next week is "Volatile", with a secondary outlook of "Bullish." What could challenge my outlook? If there are positive developments around tariffs, U.S./Ukraine discussions and/or the economic data, then this may help ease investor concerns and markets may not see as much volatility as I suspect.

Other Potential Market-Moving Catalysts:

Economic:

• Monday (3/3): Construction Spending, ISM Manufacturing Index
• Tuesday (3/4): no reports
• Wednesday (3/5): ADP Employment Change, EIA Crude Oil Inventories, Factory Orders, ISM Services, MBA Mortgage Applications Index
• Thursday (3/6): Continuing Claims, EIA Natural Gas Inventories, Initial Claims, Productivity-Revised, Trade Balance, Unit Labor Costs -Revised, Wholesale Inventories
• Friday (3/7): Average Workweek, Average Hourly Earnings, Consumer Credit, Nonfarm Payrolls, Nonfarm Private Payrolls, Unemployment Rate

Earnings:

• Monday (3/3): California Resources Corp. (CRC), Surgery Partners Inc. (SGRY), Okta Inc. (OKTA), GitLab Inc. (GTLB), Nuscale Power Corp. (SMR)
• Tuesday (3/4): Sea Ltd. (SE), AutoZone Inc. (AZO), Target Corp. (TGT), Best Buy Inc. (BBY), On Holding AG (ONON), Flutter Entertainment PLC (FLUT), Ross Stores Inc. (ROST), Credo Technology Group Holding Ltd. (CRDO), Box Inc. (BOX)
• Wednesday (3/5): Brown-Forman Corp. (BF/B), Thor Industries Inc. (THO), Abercrombie & Fitch Co. (ANF), Foot Locker Inc. (FL), Marvell Technology Group Inc. (MRVL), Veeva Systems Inc. (VEEV), Zscaler Inc. (ZS), MongoDB Inc. (MDB)
• Thursday (3/6): Canadian Natural Resources Ltd. (CNQ), Burlington Stores Inc. (BURL), BJ's Wholesale Club Holdings Inc. (BJ), Campbell's Co. (CPB), Broadcom Inc. (AVGO), Costco Wholesale Corp. (COST), Samsara Inc. (IOT), Hewlett Packard Enterprise Co. (HPE), Guidewire Software Inc. (GWRE)
• Friday (3/7): Algonquin Power & Utilities Corp. (AQN), Genesco Inc. (GCO)

Markets received a moderate dose of economic data this week, which included a benign inflation report via personal consumption expenditures (PCE) prices, but also some data suggesting continued softness around the consumer. Consumer Confidence registered its largest monthly drop in three years, Personal Spending declined for the first time in several years and Pending Home Sales dropped to the lowest level on record. Weekly jobless claims also showed a surprise jump to 242K, which is only 8K below the cycle high of 250K seen last fall. Here's the breakdown from this week's reports:

• PCE Price Index: Headline month-over-month (MoM) increased 0.3% (in line with estimates) and year-over-year (YoY) slowed to a +2.5% annual rate, which is the lowest YoY increase since early 2021. Core PCE, which excludes food and energy, increased 0.3% MoM and +2.6% YoY (both in line with estimates).
• Consumer Confidence: Dropped to 98.3 in February from 105.3 in the prior month and below the 102.5 economists had expected. This represents the largest monthly drop since August 2021. Within the report, the Expectations Index dropped 9.3 points to 72.9, representing the first time that it has fallen below the "recessionary" threshold of 80 since June 2024.
• Personal Spending: Dropped 0.2%, versus expectations for no change, which is the largest decline since February 2021.
• Personal Income: +0.9% which is above the +0.4% expected and +0.4% in the prior month.
• Pending Home Sales: Dropped 4.6% last month to an all-time low (since the NAR began tracking this data back in January 2001) of 70.6.
• Q4 GDP – Second Estimate: 2.3% vs. 2.3% initial reading.
• Durable Orders: Rose 3.1% in January to $286B, which was above the +2.0% expected. However, excluding transportation Durable Orders were essentially unchanged.
• Initial Jobless Claims: Rose to 242K from an (upwardly revised) 220K in the prior week, and above the 225K expected. Continuing Claims decreased 5K to 1.862M from last week.
• The Atlanta Fed's GDPNow "nowcast" for Q1 GDP was revised to -1.5% today from +2.3% last week.

There was some heavy buying in U.S. Treasuries this week which appeared to be driven by a combination of growth concerns and "risk off" investor sentiment. Compared to last Friday, two-year Treasury yields are down 16 basis points to the current 4.04% from 4.20% and 10-year yields are down roughly the same amount, currently 4.25% versus 4.42%.

Expectations around potential rate cuts from the Fed have been seeing an uptick recently which I believe is more tied to the recent growth concerns, rather than progress on inflation. Per Bloomberg, while the probability around a March rate remains under 5%, the first theoretical 100% chance of a 25-basis point rate cut has moved up to July Federal Open Market Committee meeting from September. Markets are currently expecting two 25-basis-point cuts in 2025 from one to two cuts last week.

This week's "tech wreck" resulted in a ~4.5% drop in the Nasdaq as Nvidia's beat and raise quarter failed to reinvigorate the AI trade. However, on near-term trading basis there are couple of potential bullish developments on the chart. The COMP essentially bounced off its 200-day SMA near the open today (it came within 15 points of this indicator) and the Relative Strength Index (RSI) registered a sub-30 reading which suggests oversold territory. Back in August when markets dropped on the unwind of the "Yen carry trade" the COMP had a similar set up and the August 5th low turned out to be a near-term bottom. There's no guarantee that the index will bounce in similar fashion this time around, but I characterize today's price action as near-term bullish.

Near-term technical translation: bullish
 

The Russell 2000 index (RUT) experienced some bearish technical developments this week, and this occurred despite falling bond yields. The RUT hit a five-month low (2,126) earlier this morning and, perhaps more importantly, sliced through longer-term support at its 200-day Simple Moving Average (SMA). This longer-term trend indicator provided support for the RUT three times over the past six months (the green arrows in the chart below). On a near-term positive note, the Relative Strength Index (RSI) dropped below 30 near the open today, which is a threshold traditionally considered oversold by many technicians, so perhaps the index may be due for a near-term bounce. On an intermediate-term basis however I'm in the bearish camp unless the index can reclaim the 200-day SMA.

Near-term technical translation: bullish

Intermediate-term technical translation: bearish

On Monday South Dakota lawmakers rejected a proposal to consider a strategic Bitcoin reserve during the current legislative session. South Dakota's House Commerce and Energy Committee voted to move the bill to the 41st day of the session, which technically indicates that the bill will not be taken up during the current session. "This is definitely a setback for Bitcoin and its adoption as a state-level institutional asset," Charles Wayn, co-founder of Galxe, told TheStreet Crypto. Several other U.S. states, such as Texas, Florida, Utah, and Arizona, are still considering similar proposals.

The Bloomberg chart below shows the current percentage of members within the S&P 500 (SPX), Nasdaq Composite (CCMP) and Russell 2000 (RTY) that are trading above their respective 200-day Simple Moving Averages (SMA). Stocks are on track for weekly losses and market breadth followed the indices lower. Also notable, market breadth (as measured by the 200-day SMA threshold) on the Russell is at the lowest levels since November 2023. On a week-over-week basis, the SPX (white line) breadth dropped to 57.80% from 62.60%, the CCMP (blue line) moved down to a six-month low of 39.07% versus 46.44%, and the the RTY (red line) sank to 41.91% from 50.03%.

Market breadth attempts to capture individual stock participation within an overall index, which can help convey underlying strength or weakness of a move or trend. Typically, broader participation suggests healthy investor sentiment and supportive technicals. There are many data points to help convey market breadth, such as advancing vs. declining issues, percentage of stocks within an index that are above or below a longer-term moving average or new highs vs. new lows.

This Week's Notable 52-week Highs (40 today): Abbott Laboratories Inc. (ABT - $0.03 to $135.84), Ecolab Inc. (ECL + $2.44 to $269.62), Gilead Sciences Inc. (GILD + $0.57 to $112.56), NRG Energy (NRG - $2.61 to $102.50), Nutanix Inc. (NTNX - $1.67 to $74.76), Starbucks Corp. (SBUX + $0.50 to $114.99)

This Week's Notable 52-week Lows (255 today): Advanced Micro Devices Inc. (AMD + $0.65 to $100.16), Alpha Metallurgical Resources Inc. (AMR - $1.39 to $147.16), First Solar Inc. (FSLR - $2.11 to $139.07), Footlocker Inc. (FL + $0.25 to $17.61), Precision Drilling Corp. (PDS - $0.38 to $49.75), Synopsys Inc. (SNPS + $4.21 to $458.92)