MARKET WRAP

Another fairly quiet day. Equities began red before grinding higher for most of the morning, then adding a pop after the FOMC Minutes. The final hour saw a tiny bit of a volatility with PLTR and defense stocks moving lower on potential Pentagon spending cuts. SPX closed +0.24%, QQQ +0.05% and IWM -0.4%. Treasuries were fairly quiet. The 10 year yield was down slightly and is now 4.54%. Oil was +0.6%. The VIX is still 15.30. Gainers included MRK and JNJ. Some notable declines today in CRM, INTC and PLTR. MRKT Call asks is this the newest meme stock? RiskReversal Pod has coverage of Alex Karp’s new book, discussions on WMT earnings and more. Finally, some thoughts on meme stocks vs. the market at the bottom of this email. Enjoy!

MRKT MATRIX: February 19, 2025

Today’s Top Stories:

• S&P 500 rises to another record, shaking off more tariff fears (CNBC)

• Trump Floats 25% Tariffs on US Auto, Drug, Chip Imports (Bloomberg)

• Fed officials are worried about tariffs’ impact on inflation and see rate cuts on hold, minutes show (CNBC)

• Apple unveils cheaper iPhone 16e powerful enough to run AI (CNBC)

• Palantir CEO Alex Karp’s New Plan to Sell $1.2 Billion of Stock (Barron’s)

• Silver Lake in talks to buy majority stake in Intel’s Altera unit (FT)

• Musk’s X in Talks to Raise Money at a $44 Billion Valuation (Bloomberg)

• ByteDance's US Backers Say China Growth to Counter Any TikTok Ban Damage (Bloomberg)

Today’s MRKT Call is Presented by SoFi

Introducing The Newest Meme Stock 🚀💎🙌

Liz, Dan, and Guy kick off the show by discussing the SPX and the equal-weighted RSP hitting all-time highs. They debate whether this signals a broadening rally or a return to mega-cap dominance, and what that means historically. Dan highlights the rangebound action in SOXX, despite strong moves in individual names like INTC to start 2025. The team then looks ahead to NVDA’s upcoming earnings, questioning if it will once again be the Super Bowl of earnings season. Liz notes how semiconductor stocks trade into the report can offer insight into market sentiment. A viewer question sparks a discussion on RSP and equal weighting as a gauge of the economy’s health. They also explore EuroStoxx and European banks' recent outperformance, considering the impact of shifting US/Europe/Ukraine relations. The conversation shifts to comparing large-cap stocks in Europe, China, and the US, focusing on recent gains and 12-month forward earnings growth. An email from Doug Kass prompts a debate on historical equity overvaluation. The "Call of the Day" spotlights CRWD, QCOM, AMAT, and LRCX, followed by the "Chart of the Day," featuring the latest meme stock sensation and a look inside the crazy option skew.

Click here to access all of the charts mentioned in today’s MRKT Call.

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Today’s RiskReversal Podcast is Presented by Betterment and iConnections

Palantir, Tech Patriotism & SPX Complacency: What It Means for Markets

Dan and Guy delve into the valuation of AI startups and companies, featuring a comprehensive discussion on Alex Karp's new book and the current state of generative AI investments. The conversation then shifts to the public market, focusing on fluctuating valuations and the recent performance of major indices like the S&P 500. They also analyze the homebuilders and retail sectors, spotlighting companies like Toll Brothers and Walmart, and emphasizing the influence of rising interest rates and employment statistics. The episode wraps up with insights on significant upcoming earnings reports, particularly from Walmart, and their potential implications for the market.

Further Reading Bloomberg: https://www.bloomberg.com/news/newsle... 

Timecodes

• 0:00 - Tech Patriotism

• 14:14 - SPX Key Levels

• 21:52 - Meta

• 25:35 - TOL & WMT

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What’s Next?

As mentioned recently, there’s some overhead supply just above current SPX levels. Market volatility expectations remain historically low for the next week but tick up slightly ahead of NVDA’s upcoming earnings. If NVDA mirrors its last report with minimal movement, the market could stay in its current pattern. However, a sharp drop in NVDA that drags the market lower might signal yet another failed breakout for the major indices since late 2024. Conversely, if NVDA rallies and lifts the broader market, it’s worth remembering how measured rallies can quickly shift into manic ones, often driven more by FOMO than fundamentals.

Right now, we’re in a low implied volatility (IV) “grind higher” phase, where markets steadily climb with frequent green days and only shallow pullbacks—like ascending a staircase. But not all rallies maintain this calm. Some tip into speculative territory, fueled by emotions rather than fundamentals. Spotting when a steady rally turns manic is key, as it often leads to heightened volatility and typically marks the late stages of a broader uptrend.

Signs of a Market Turning Speculative/FOMO:

• Meme Stock Surges & Short Squeezes:
  Sudden, irrational spikes in "meme stocks" (like HIMS today) often signal speculative fervor. These moves are often driven by social media, leading to short squeezes and a rush to not miss out.

• Unusual Options Activity – FOMO Buying:
  A fervor in out-of-the-money call buying, can skew options pricing. This leads to rising upside skew in IV, reflecting aggressive, sentiment-driven bullishness and a good early signal of the beginning of manic moves higher.

• VIX Rising with Stocks:
  Normally, the VIX falls when markets rally, but if it climbs alongside rising stocks, it suggests heavy options buying (especially calls) and underlying nervousness—often from institutional hedging.

• Gamma Squeezes:
  When IV rises with stock prices, it can trigger gamma squeezes. Dealers hedging sold calls by buying the underlying stock can push prices even higher, creating a self-reinforcing rally.

• Changing Market Breadth:
  Healthy rallies are broad-based, but speculative phases often see gains concentrated in high-momentum names.

While low-volatility rallies can last for some time, speculative excess leaves clues and usually comes towards the end of a broad based rally (it can last a decent amount of time too!). Meme stock pops, excessive upside call buying flows, rising IV with price, and odd VIX behavior all signal a market tipping toward euphoria. We're not there yet, but today’s action in HIMS is a reminder to watch for any signs.

Tomorrow morning’s earnings with expected moves: 

• BABA 6.2%

• WMT 4.9%

See ya tomorrow!

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