Stocks sold off this past week in a classic risk off fashion, rotating out of the sectors that included secular growers, like technology, consumer discretionary and communication services and into utilities, consumer staples and health care. We believe that this action may continue for a while as the former are in the process of consolidating after the run-up off the bear market bottom during early April 2025. Investors also chose the safety of the U.S. Treasury Market pushing the 10-Year Note below four percent for the first time since late October.
- Bonds rallied on Friday, despite a hotter than expected Producer Price Index (see below), concerned over the looming negative impact on the labor market as the adoption of Artificial Intelligence (AI) accelerates. Fixed income investors also piled into bonds as the tensions between the United States and Iran heat up.
- Despite beating on both revenue and earnings projections and reporting gross margins of 75%, shares of Nvidia (NVDA) fell, an indication to us that, at least for the time being, all of the good news has been priced into the share price. However, as noted above, we believe that the pullback of these shares as well as the relatively poor performance of the technology sector is more of a consolidation rather than the start of something much larger.
- In an eleven-page complaint, FedEx (FDX) sued the U.S. Government, specifically naming the U.S. Customs and Border Protection, which collects tariffs, seeking a “full refund.” Although the costs to the shipping giant were not disclosed, last fall company executives projected a $1 billion hit to 2026 earnings.
- Shares of Netflix (NFLX) surged after announcing on Thursday that they were withdrawing their bid for Warner Brothers Discovery (WBD) after Warners Brothers determined that the bid by Paramount Skydance, coincidentally led by son of Larry Ellisocn (Oracle CEO) was superior to that of Netflix. As owners of NFLX for the benefit of our clients, we are happy the deal fell through as the integration would have taken a lot of money, forcing Netflix to take on debt additional debt.
- We are just biding our time as the market churns, waiting for the weak hands to finally give way. We are hoping to pick up shares of the leaders at a lower price. Over the past five months, the NASDAQ Composite is virtually flat (+0.04%) as the S&P 500 has climbed 2.85% higher.
It’s The Economy…”
- Prices at the wholesale level as measured by the Producer Price Index rose 0.5% during January after rising 0.4% in December. Over the past year the PPI has risen 2.9%, down from 3.0% in December and from a peak rate of 11.7% during March 2023. Energy prices slipped 2.7% during January (4.4% y/y) after falling 1.5% in December. Finished food prices fell 1.5% during January (-1.5% y/y) after sliding 0.2% in December. Ex- food and energy, the core PPI rose 0.8% during January (3.6% y/y), after rising 0.6% in December. Prices for Intermediate Goods remained unchanged during both January and December (2.6% y/y).(Source, U.S. Bureau of Labor Statistics)
- U.S. Construction Spending rose 0.3% in December, after falling 0.2% in November. Over the past year Construction Spending has fallen 0.4%. Private Construction Spending rose 0.5% in December (-1.5% y/y), after falling 0.2% during November. Private Residential Construction Spending rose 1.5% during December (-1.3% y/y), after holding steady in November. Private Nonresidential Construction Spending fell 0.7% during December, after falling 0.5% in November (-1.8% y/y). Lastly, spending on Public Projects fell 0.5% during December (3.5% y/y), after sliding 0.2% during November. (Source, U.S. Census Bureau)
- The Conference Board’s Consumer Confidence Index rose to 91.2 (-8.9% y/y) during February from 89.0 in January. The January figure marked the lowest reading since May 2014. The present situation index fell to 120.0 in February from 121.8 (-10.8% y/y) while the expectations component rose by 4.8 points to 72.0 (10.4% y/y) from 67.2 during January. Those surveyed saying that jobs are “hard to get” rose to 20.6% of respondents during February from 19.0% in January while those claiming that jobs were “plentiful” rose to 28.0% of respondents from 25.8% during those same months.
Economic Reports scheduled to be released this week, include the following – on Monday, Institute for Supply Management’s February Manufacturing Sector Purchasing Managers Index; on Wednesday, Institute for Supply Management’s February Service Sector Purchasing Managers Index; on Thursday, Initial Claims for Unemployment Benefits; and, on Friday, February Non-Farm Payroll Report, the February Unemployment Rate and January Consumer Credit.
Several potentially market moving companies are scheduled to report earnings, to include CrowdStrike (CRWD), Ross Stores (ROST), AutoZone (AZO), Viking Holdings (VIK), Broadcom (AVGO), Veeva Systems (VEEV), Costco Wholesale (COSTJ), Petroleo Brasileiro ADR (PBR), Marvell Technology (MRVL), Kroger (KR), and Ciena (CIEN).