Market Wrap
Outlook
A capital war masquerading as Trade War 2.0 lies at the heart of current market dynamics, as evidenced by foreign central banks' significant $100bn post-election Treasury selling—a volume matching the entire FY24 net issuance. This shift in foreign positions coincides with mixed labor market signals: January's NFP showed a headline miss at 143k (vs 175k expected), despite substantial upward revisions to November and December (+568k combined). While the annual benchmark revisions revealed a weaker 2024 overall, with total hiring down to 1.996 million from 2.232 million, wage growth persists at a concerning 0.5% MoM.
Markets are now shifting focus from headline risks to deeper structural challenges within the dollar system. Michael Hartnett highlights a potential "government recession" orchestrated by Trump and Musk, targeting public sector savings that could affect growth and employment. These combined forces—trade uncertainty, labor market shifts, capital flow disruption, and changing government spending patterns—call for tactical flexibility and close monitoring of systematic triggers and foreign holdings data.
The technical setup shows increasing vulnerability. Critical SPX levels are 5996 (short-term), 5828 (medium-term), and 5353 (long-term). The gamma profile has weakened from +$12bn to +$5.9bn (47th percentile), showing an unusual downward slope that indicates less support during rallies. Though systematic strategies currently show bullish positioning—CTAs (+0.6%), Risk Parity (+0.8%), and Vol Control (+1.1%)—this could quickly reverse given high correlation risks and upcoming catalysts.
The main downside risk lies in an escalation from trade to capital war, with foreign central banks wielding $3.5tn in Treasuries as leverage. This risk is heightened by ongoing wage pressures and the Fed's likely need to maintain elevated rates. The upside scenario depends on Trump showing policy flexibility, potentially resolving trade and immigration issues quickly, backed by strong corporate buybacks (60% of S&P 500 companies opening windows February 7) and systematic buying support.
Week 7 brings crucial events: US CPI on Wednesday, Powell's Congressional testimony Tuesday/Wednesday, and US retail sales Friday. These events unfold as global equity markets rotate, with European indices reaching new highs while US growth stocks underperform. Though ISM manufacturing recovery signals and strong earnings results (76.3% beats with 6.4% aggregate surprise) point to economic resilience, rising inflation expectations and weakening consumer sentiment create offsetting pressures.
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Forward Earnings
Metric | UpDn | This Week | Prior Week | % Change | % Baseline | Baseline | Baseline TF |
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Forward 4-qtr Estimate | 🔴 | 271.24 | 272.77 | 263.39 | January 1, 2025 | ||
Forward 4-qtr PE | 🔵 | 22.4 | 22.3 | 22.7 | January 1, 2025 | ||
Nominal Earnings Yield | 🔴 | 4.46 | 4.48 | 4.41 | January 1, 2025 |
Volatility & Correlations
Metric | UpDn | This Week | Prior Week | Net CHG | % CHG | Excess |
---|---|---|---|---|---|---|
VIX3M - VIX1M 10d Z | 🔵 | 0.72 | -0.2 | 0.92 | 460% | |
COR1M | 🔵 | 11.14 | 8.42 | 2.72 | 32.3% | |
COR3M | 🔵 | 13.48 | 12.51 | 0.97 | 7.75% | |
Equity Put/Call Ratio | 🔵 | 0.52 | 0.49 | 0.03 | 6.12% | |
SPX/SPXW Put/Call Ratio | 🔴 | 1.25 | 1.28 | -0.03 | -2.34% | |
VIX Put/Call Ratio | 🔴 | 0.34 | 0.75 | -0.41 | -54.67% | |
OEX Put/Call Ratio | 🔴 | 3 | 4 | -1 | 0.25% |
S&P 500 Futures
ATM IV30 12.73% v HV 13.27% IV-HV -0.54%Bulls will seek to breakout above Friday’s pullback high of 6078.50 on a closing basis. Upside: WHI 6123.25 and YTD High 6162.25 are within +1σ (W) 6169 (+1.98%).Bears will seek to breakout below 6046.50 and offer < MM 6014.50 on a closing basis. Downside: WLO and extending 1TFD is coincidental with -1σ (W) 5935 (-1.89%).
Last Week: 6049.50 MAR25 -0.28%Bulls will seek to hold the 6056.50 → 6146.75 TR and ideally reverse and breakout to the upside. Upside: WHI 6146.75, YTD High 6162.25, and ATH 6184.50 are within+1σ (W) 6186 (+1.96%).Bears will seek to form a second-leg down by offering below 6056.50 on a closing basis. Downside: 6000 (-1.11%) and MM 5965.25 target are within -1σ (W) 5953 (-1.88%).
Indicators
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