MARKET WRAP

An eventful expiration Friday! Markets slid following misses in consumer sentiment and housing data, and got worse with a new coronavirus headline. The SPX was down 1.7%, QQQ -2%. The DJIA has dropped nearly 1,200 points since Wednesday, first WMT and now UNH leading it lower. Treasury yields weren’t the issue on today’s weakness—the 10yr yield fell again, now 4.43%. Oil (-3%) also declined, reinforcing the risk-off tone. The VIX rose to 18.30. Vaccine stocks like MRNA (+5%) gained midday on the coronavirus headline. Chinese stocks like BABA (+5%) benefited from trading ahead of the US Markets, while back here, recent meme/momentum names like HIMS (-25%) got killed. IWM was down nearly 3%. Defensive names like KO (+2%) and PG (+1.7%) were in the green. XLP was up 1.2% amidst the carnage elsewhere. On today’s RiskReversal Pod, Dan talks with David Zervos, Chief Market Strategist at Jefferies, about market dynamics, policy shifts, and geopolitical risks!

MRKT MATRIX: February 21, 2025

Today’s Top Stories:

• Dow tumbles 700 points in worst decline of 2025 so far (CNBC)

• US Consumers Long-Run Inflation Views Rise to Highest Since 1995 (Bloomberg)

• Steve Cohen ‘Negative’ on US Economy, Citing Tariffs and DOGE (Bloomberg)

• Expect more volatility ahead as market navigates shifting political winds, UBS says (CNBC)

• Bull market could be disrupted by unanticipated economic slowdown, Bank of America’s Hartnett says (CNBC)

• DOJ Investigates Medicare Billing Practices at UnitedHealth (WSJ)

• Coinbase Says S.E.C. Will Drop Crypto Lawsuit (NYT)

• Shares of Hims & Hers tumble 23% after FDA says semaglutide is no longer in shortage (CNBC)

• Nvidia CEO Jensen Huang Says the DeepSeek Reaction Was Wrong. Here’s Why. (Barron’s)

• OpenAI's weekly active users surpass 400 million (Reuters)

• Large Language Models Pose Growing Security Risks (WSJ)

Today’s RiskReversal Podcast is Presented by CME Group, iConnections, and Robinhood

LFG with Jefferies’ Chief Optimist David Zervos

Dan Nathan is joined by David Zervos, Chief Market Strategist at Jefferies, for a comprehensive discussion on market dynamics, policy impacts, and geopolitical considerations. David shares his extensive background, highlighting his 15 years at Jefferies and his earlier experiences as a macro trader and advisor to the Federal Reserve. The conversation delves into the current state of financial markets, the impact of central bank policies, and the role of macro strategies. David provides his optimistic outlook on the efficacy of policy tools, the potential for deregulation under the new administration, and the prospects for economic growth and inflation. The episode also touches on the concentration of tech stocks, the importance of innovation, and the potential for deflationary pressures from technological advancements.

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What’s Next?

Today’s drop in equities, oil, and treasury yields, alongside gains in defensive names like consumer staples is reminiscent of slowing growth concerns. If this trend continues, it could mark a key shift in the market narrative—from inflation fears to the economy. Whether today was just a one-off bout of profit-taking or the start of a broader shift remains to be seen, but it definitely changes the tone heading into next week.

One of the few “gainers” today was the VIX, up from 15.50 to 18.50—the type of sharp move we haven’t seen on recent down days. If it wasn’t into a weekend it may have been above 20.

In yesterday’s note, we highlighted how the SPX might struggle to break above 5150 and suggested a potential SPY hedge when implied volatility was still historically low. That trade—the March 31st +595p/-665p put spread for $3—is now $5 after today’s sell-off. With IV spiking, downside protection has become a bit more expensive, but today’s action feels like the kind of selling that could drive more investors to seek hedges over the next month or two, so if you also wanted to do that, there will still be opportunities.

If you're considering adding protection, it may be worth waiting for a green open or targeting low-cost put spreads where implied volatility matters less. Deep out-of-the-money put spreads can benefit from skew, as the farther OTM leg will carry much higher IV. We’ll dive deeper into those strategies over the next few trading days, depending on Monday’s open.

We’ll also be back this weekend with a preview of next week’s trading, including the much-anticipated NVDA earnings! Have a great weekend and check your inbox Sunday evening!


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