MARKET WRAP

The indices brushed off earnings reactions from AMD and GOOGL, grinding higher throughout the session. The S&P 500 (SPX) closed up +0.4% at 6060, posting gains for the week despite tariff concerns. The Nasdaq 100 (QQQ) also added +0.4%, while the Russell 2000 (IWM) led with a gain of over +1%, driven by declining Treasury yields—a key narrative to watch. TLT is now testing the $90 level, and if it continues higher, it could provide further support for an equity rally. Meanwhile, the VIX has dipped below 16 (more on that at the bottom of this email) Gold extended its rally, reaching new highs. On today’s MRKT Call, Liz breaks down the factors fueling gold’s strength, while Guy highlights the significance of TLT and yields as they bump against key trendlines. On today’s RiskReversal podcast, Dan is joined by Rishi Jalaria of RBC Capital Markets to discuss generative AI and more. Enjoy!

MRKT MATRIX: February 5, 2025

Today’s Top Stories:

• Dow closes 300 points higher for back-to-back gains as investors look past tariff tumult (CNBC)

• EU prepares to hit Big Tech in retaliation for Donald Trump’s tariffs (FT)

• Canada Eyes More Ways to Ship Oil to China as US Threatens Trade (Bloomberg)

• USPS says it will resume accepting inbound packages from China, Hong Kong (CNBC)

• US Firms Add 183,000 Jobs in ADP Data, More Than Forecast (Bloomberg)

• JPMorgan picks the stock winners and losers after cheap DeepSeek upends AI trade (CNBC)

• Chinese chip makers, cloud providers rush to embrace homegrown DeepSeek (Reuters)

• Uber Opens Waitlist for Waymo Rides in Austin Ahead of Launch (Bloomberg)

• Nissan to Reject Honda Deal to Create World’s No. 3 Automaker (WSJ)

Today’s MRKT Call is Presented by SoFi

Stocks Shake Off Latest Batch of Mag 7 Earnings

Guy and Dan are joined by Liz as they dive straight into the discussion on declining Treasury yields and their impact on equities. Liz notes that while some of today’s market movement reflects a “risk-on” and “growth-on” sentiment, much of the action remains cautious—particularly in gold, where central banks are driving much of the rally. Guy examines TLT’s trendline and considers the potential implications if it breaks through the downtrend to the upside. The conversation then shifts to Alphabet’s earnings and the stock’s pullback from all-time highs. They also compare SPY to the Equal Weight RSP, analyzing the current spread between the two. Next, they break down the performance of semiconductors versus software and check in on the retail sector with a look at Costco and Walmart. In discussing the latest tariff news, Liz highlights the Monday’s and Tuesday’s market reactions, emphasizing how much of the response was driven by growth concerns in addition to inflationary effects. She points out that traders and investors are signaling specific worries about how a tariff war could impact the broader economy, with assumptions of at least some stagflation. Finally, they review John Butters’ weekly FactSet report, with particular focus on the number of companies mentioning tariffs in their earnings calls.

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Today’s RiskReversal Pod is Presented by Betterment and RBC Capital

AI Winners and Losers: Navigating Volatility in the Tech Sector with Rishi Jaluria

Dan Nathan is joined by Rishi Jalaria of RBC Capital Markets to discuss generative AI use cases, capital expenditures, investor sentiment, and the current vibe in the private investing market. A significant focus is placed on Microsoft's recent performance, their CapEx allocation, and the deceleration in Azure growth, offset by the promising AI revenue from Office Copilot. They also delve into Salesforce's AI strategy, the blurred lines between copilots and agents, and the evolving landscape of enterprise software. Additionally, they explore the relationship between Microsoft and OpenAI amidst the broader context of AI innovation, with mentions of key players like Alphabet and Oracle. The discussion touches upon recent market volatility, the impact of CapEx announcements on stock performance, and the pivotal role of innovation in AI's future. Rishi also shares insights on underappreciated opportunities in vertical software and the expansive potential for generative AI applications in the sector. The podcast wraps up with a look at the broader implications of AI advancements and the intersection of power constraints and data center capacity in shaping the future tech landscape.

Timecodes

0:00 - Microsoft

5:55 - AI Vibe Check

17:45 - Project Stargate

24:45 - Looking Forward

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What’s Next?

The market’s resilience was on display today as it shrugged off disappointments in AMD and GOOGL, maintaining its upward momentum since the tariff news drop. Meanwhile, declining Treasury yields are at a critical juncture—a further drop could provide fuel for equities to push back toward their highs and potentially beyond. One key factor to monitor is volatility. Since Monday morning’s lows, the VIX has dropped from above 20 to below 16. If the market finishes the week strong, particularly following Friday’s Jobs report, we could see an even sharper decline in the VIX, which would coincide with a return to a positive gamma regime in index options. In such a scenario, the market would be primed for a slow, grinding move higher, with intraday and day-to-day volatility compressing quickly. While macroeconomic factors continue to dictate the broader trend, the near-term market setup will be crucial in determining how stocks behave day to day.

Here are some key levels to watch:

• If the S&P 500 (SPX) holds above 6000 following the Jobs report—and assuming the tariff narrative fades into the background while Treasury yields continue to decline—the index is positioned for a steady climb toward 6165 over the next few weeks. However, that level carries significant overhead options resistance through March. A breakout beyond 6165 would likely require a surge in bullish sentiment, further declines in yields, and a strong positive reaction to NVDA earnings.

• On the downside, a break below 6000—whether triggered by the Jobs report, tariff concerns, or a rebound in yields—could quickly reignite volatility. Below that level, options positioning offers little support, and in the short term, selling pressure could accelerate as participants are forced to adjust.

The most probable outcome for this week is a finish around 6050. A close above that level could set the stage for a steady move toward 6150 over the next week or two, while a drop below 6000 would likely return the market to the choppy, high-volatility environment seen in recent weeks.



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