By: John Kicklighter, Head of Market Research
Talking Points:
We are heading into the last week of February. Historically, this month is punctuated by restrained volume and volatility with an average performance from the S&P 500 that generally balances out to a general lack of commitment by either bulls or bears. On a more granular basis, the 9th week of the year – which we are heading into – brings a post-holiday activity rebound and has averaged a more distinct slide form the speculative benchmark.
Chart of Average Weekly S&P 500 Performance and Volume (Daily)
Source: John Kicklighter
The end to this past week’s market stretch suggests the bearish swoon may once again be at hand, but that depends heavily on the fundamentals that are willing to carry the torch against a more systemic bull theme over the past few years. While it is possible that all of the major fundamental themes contribute to a bearish view among the masses, it is more likely that a principal worry take up the cause for cynics – if indeed we are to live up to the bearish averages. Look for the top event risk over the coming week to either amplify or dispel these general worries.
Chart of Dow Jones Industrial Index Overlaid with Nasdaq-Dow Ratio (Daily)
Source: John Kicklighter, Trading View
For macro event risk, there is a notable skew in density and weight towards the latter half of the coming week. I will be watching events like the German Federal election, South Korean central bank expected rate cut and Home Depot earnings over the weekend and through the first few days of trade; but the first macro update of systemic heft that I will be watching will be Tuesday’s US consumer confidence survey from the Conference Board. Generally, the US consumer is the largest collective GDP force in the global economy; so there is weight to build upon last week’s tentative concern surrounding economic output that was touched off by the February PMIs.
Calendar of Top Global Macro Event Risk
Source: John Kicklighter
Beyond that more rudimentary influence though, I will be watching this survey for evidence of concern related to tariffs, inflation, government spending initiatives, Fed rate intentions and other uncertainties resulting from political instability. If the Trump administration’s economic promise turns into a view of financial chaos, there is a lot of built up premium that may be at risk.
In general, we are at the very end of the US earnings season. That said, we still have some important names on the macro and speculative scales to register. On the back of the outlook warning by Walmart, the market seems to be unsettled around the potential for economic foothold on otherwise speculative reach. Names like Home Depot and Lowe’s are consumer and home owner themed shares. However, I will take a more speculative focus this week – as I am sure many equity traders will, Top of the list in big names reporting their corporate performance is Nvidia, the second largest market cap US stock and the symbolic leader of the AI market drive.
Chart of Nvidia Overlaid with Nasdaq 100 and 20-Day Correlation (Daily)
Source: John Kicklighter, Trading View
The company hasn’t missed analyst expectations since November 2022 and NVDA is up approximately 90 percent year-over-year. There is therefore a notable skew in expectations here. That can cause problems should there be a shortcoming in the data. Even a modest miss could be amplified by disbelief of such an outcome and the early waver in risk trends more broadly, Don’t underestimate the skew in the probability tables around this important corporate update.
Through the very end of this coming week, there are a few potential themes that can be stirred to life. From the perspective of trade wars, we have the January US goods trade balance as a baseline for disruptions ahead and the CFIB Canadian business sentiment survey that should offer tangible reflection of concern around as-yet impending tariffs. Rate expectations for the Fed –as a global leader on monetary policy – is another matter that will have a very targeted provocation via the central bank’s favored inflation indicator: the PCE deflator. That said, rate speculation has not been the most productive driver as far as the broader markets are concerned.
Instead, I will be following the official growth reading in the aftermath of the productive monthly PMIs. In this case, the top developed world economies are out of the spotlight, and the focus instead goes to the second tier economic powerhouses. While Canada will offer its December and thereby Q4 updates, it is the top emerging market GDP readings that I will be most interested in – particularly given exchange rate volatility from the likes of USDINR. We are due fourth quarter growth readings from Turkey, India and Brazil on Friday alone.
Chart of Major Economies PMIs (Monthly)
Source: John Kicklighter, S&P Global
-- Written by John Kicklighter, Global Head of Content
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