MARKET WRAP

Equities started the day on a quiet note, despite treasury yields climbing higher after the Jobs Report. However, sentiment shifted as a weaker-than-expected UoM Consumer Sentiment reading and renewed tariff concerns led to selling throughout the session (more on those stories below). By the close, SPX finished -1%, QQQ -1.3%, and IWM -1.2%. For the week, SPX was only down slightly on back-and-forth volatility. The 10-year yield now sits at 4.49, while TLT pulled back (-0.65%) from yesterday’s near $90 close. The VIX moved higher, now at 16.55. Notably, today’s declines in the major indices exceeded the market’s implied moves for the session. On today’s RiskReversal Pod, Lori Calvasina of RBC joins for a deep dive into market trends, as well as thoughts on the unpredictability of the news cycle—don’t miss it!

MRKT MATRIX: February 7, 2025

Today’s Top Stories:

• Dow tumbles 400 points on tariff and inflation fears, Nasdaq falls 1% led by Amazon (CNBC)

• Consumer inflation fears spike in February as tariff worries hit sentiment (CNBC)

• Trump Says He Will Announce Reciprocal Tariffs Next Week (Bloomberg)

• S&P 500 Earnings Season Update: February 7, 2025 (FactSet)

• Amazon, Like Microsoft, Says It Can’t Keep Up With AI Demand (Bloomberg)

• The Drug Industry Is Having Its Own DeepSeek Moment (WSJ)

• Citi downgrades Nike to neutral after disappointing meeting with CEO (CNBC)

• Tesla car sales in China fall 11.5% as competition intensifies (CNBC)

• Softbank set to invest $40 billion in OpenAI at $260 billion valuation, sources say (CNBC)

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

Market Vibe Check with Lori Calvasina

Guy Adami and Dan Nathan are joined by Lori Calvasina, Head of U.S. Equity Strategy at RBC Capital Markets, to discuss various market trends. The episode delves into the current state of the stock market, major economic indicators, and the impact of geopolitical events and tariffs on market performance. Lori shares insights on the financial and energy sectors, the role of AI in corporate earnings, and the challenges of forecasting in an uncertain economic climate. The discussion also touches on interest rates, market valuations, and the potential for a rocky path ahead. Lori emphasizes the importance of a disciplined, data-driven approach to market analysis, while Guy and Dan underscore the significance of staying informed amidst market volatility.

What’s Next?

Over the past two months, the stock market has been caught in a cycle—each time it looked ready to break out to new highs, something came along to knock it back down. In December it was inflation data and rising Treasury yields derailing momentum. Very recently, it hasn’t been yields but rather a string of headlines—concerns around DeepSeek’s affect on mega cap tech, tariff threats, and other macro uncertainties—that have kept the market in check.

Now, a new potential headwind is emerging: consumer sentiment and fears of an economic slowdown (and inflation) triggered by tariffs. As frequent RiskReversal guest Peter Boockvar pointed out this morning, Consumers Don't Like Tariffs:

Inflation was the dominant issue in this Fall’s election, yet potential tariffs didn’t make much of a splash. Whether it’s due to TikTok algorithms pushing the potential inflationary impact of tariffs, or increased traditional media coverage, Main Street is clearly now wary of tariffs and are expressing they they don’t have the appetite for another round of inflation. Whether this sentiment becomes a vocal counterweight to a trade war remains to be seen. But it is certainly something to watch as it could start to affect behavior.

Despite ongoing setbacks, the market has shown resilience, holding steady despite repeated challenges. It’s also possible investors start to discount the tariff headlines and take a “we’ll deal with that if it actually happens” approach as they take equities to new highs. The next few weeks will be key in determining whether sentiment can turn the corner or if another wave of uncertainty stalls upward momentum.

The 6000 SPX area remains critical for the next few weeks of market behavior as moves higher from here likely take away the non headline risk volatility where a move below combines headline risk with a liquidity backdrop that could accelerate moves. Stay tuned this weekend for a preview of next week, including newly relevant inflation data mid week.

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