The Week Ahead

This is the week a lot of market participants had highlighted on their calendar. We get earnings reports from some of the largest market cap companies in the world, the last FOMC meeting until March and then ending the week with important inflation data. We enter the week with SPX 6100, just below the all time high from Thursday. Below is a snapshot of expected moves for this week for major indices/etfs:

• Expected Moves for the Week:

  • SPY/SPX: 1.2%

  • QQQ: 1.8%

  • IWM: 2.0%

  • USO: 2.6%

  • TLT: 1.2%

Economic and Earnings Calendar (% = expected move)

• Monday

  • Earnings Pre-market: SOFI 12%, T 4%

• Tuesday

  • Earnings Pre-market: BA 4.3%, LMT 3.8%, GM 6.2%

  • Earnings after hours: SBUX 6%

• Wednesday

  • Earnings Pre-market: ASML 6.8%

  • 2pm: FOMC Interest Rate Decision

  • 2:30pm: Powell press conference
    Earnings after hours: TSLA 8.7%, META 7%, MSFT 3.8%, IBM 5.9%

• Thursday

  • Earnings Pre-market: UPS 5.4%, MA 3.3%

  • 8:15am: ECB Interest Rate Decision

  • 8:30 US GDP

  • Earnings after hours: AAPL 4.3%, INTC 8.6%, V 3.2%

• Friday

  • Earnings Pre-market: XOM 2.6%, CVX 2.7%, ABBV 3.7%,

  • 8:30am: PCE

VIX and Short-Term Volatility:

• The VIX closed below 15 on Friday.

• However, short-duration implied volatility in major indices is expected to increase heading into midweek.

• This rise reflects market expectations for potential moves tied to the FOMC decision, mega-cap earnings, and the PCE report on Friday morning.

After-Hours Volatility in ETF Options:

• ETF options (e.g., SPY, QQQ) expiring midweek will experience after-hours price volatility due to earnings reports.

• Strikes slightly out of the money at the 4 PM ET close are at risk of being in the money after hours.

• Traders with expiring options on Wednesday or Thursday should be mindful of potential multi-dollar moves in ETFs caused by large earnings-driven moves in mega-cap stocks.

The DeepSeek News

• Overview:

  • The release of Deepseek AI in China last week has sparked widespread debate about its potential impact on equities.

  • The significance of this news remains unclear, with two competing narratives emerging:

  1. The "Not a Big Deal" Argument:

  • This is another incremental step in the broader AI story.

  • AI-related spending on infrastructure, chips, and hardware (e.g., NVDA products) continues as usual.

  2. The "This Changes Everything" Argument:

  • Deepseek’s open-source software is far more efficient, consuming less energy and hardware resources than competitors with multi-billion-dollar infrastructures.

  • This could disrupt the current AI spending frenzy, particularly for companies like NVDA, which rely heavily on demand from AI for infrastructure and chips.

  • Historical Comparison:

    • Some draw parallels to the dot-com bubble:

      • Companies like CSCO thrived during the bubble due to high infrastructure demand.

      • After the bubble burst, oversupply and commoditization drove down prices and demand.

    • If DeepSeek’s claims hold up, it may commoditize AI infrastructure, challenging the financial assumptions underpinning recent AI spending announcements.

  • Implications for Key Players:

    • The fact that DeepSeek’s open-source code can run on two-year-old Macs raises questions about the massive AI infrastructure investments recently announced by OpenAI, Microsoft, Oracle, NVDA, and others.

    • These developments could cast doubt on projects like last week’s $500B AI infrastructure plan.

• Short-Term Sentiment:

  • Keep an eye on how stocks like NVDA, ORCL, MSFT, and even AAPL react to the DeepSeek news at Monday’s open.

  • Even if the immediate reaction is muted, this story is likely to shape market narratives in the weeks ahead.

• Long-Term Impact:

  • While the full implications remain uncertain, DeepSeek and similar subsequent breakthroughs could fundamentally alter expectations for the AI sector, potentially affecting infrastructure spending and stock valuations.

Be prepared for volatility, both from macro events (FOMC, earnings) and sector-specific news like DeepSeek’s developments.

We’ve got some great content for you all week. Dan and Guy will be broadcasting from the iConnections Global Alts Conference in Miami, covering the FOMC decision, the big week of earnings and some special guests from The Big Short as well as an appearance from Michael Saylor.

Subscribe to the RiskReversal YouTube Channel and drop a comment/like to show your support

Want to check out past episodes? Search for “On The Tape,” “MRKT Call,” or “Okay, Computer.” wherever you listen to podcasts

We want to hear your feedback! Reply to this email with any comments or questions