Good morning: |
We're getting ready for the Super Bowl… but the more important news is that Pitchers and Catchers report this week to Spring Training. People keep asking me who I'm taking in the game tonight… I don't have a dog in the fight. I'll be shocked if I make it that late… |
It's funny that 11 years ago was my Bachelor Party… Same teams… |
I don't think I was working that hard back then… taking off the Monday after the Super Bowl? Can't do that… especially here at TheoTrade. |
We'll be live tomorrow at 8:45 ET. So, set your coffee maker now… I'll be explaining the markets as many people try to get their feet under them like some college sophomore checking into economics class with two bloodshot eyes. |
To help you prepare, here's my update on the week ahead. |
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The Dow closed above 50,000 for the first time on Friday. |
You'd think that would feel good. |
But if for big institutions that owned software or AI space last week, they probably didn't even notice. |
They were too busy watching those positions bleed. |
We have provided a warning for a week on momentum and money flowing out of the sector. But some people didn't listen. Remember, we give away all this content and insight each morning. |
Over at TheoTrade, I just unveiled our new morning show… new charts… new production… a real two-man wrecking crew in the morning. If you haven't had the chance to join us, I'll be there tomorrow to walk you through the week ahead. |
The Nasdaq has now fallen for four consecutive weeks. |
The software sector is in full retreat, with the iShares Software ETF shedding 23% since January 1. |
The S&P 500 has been red in three of the past four weeks. |
And one comment from Wednesday has been rattling around in my head all weekend. |
Michael Toomey, an equity trader at Jefferies, wrote to clients, "Net net, I have never seen sentiment this negative in any group in my career." |
Let that sink in. That's not someone posting memes on Reddit. That's an institutional desk trader at a major Wall Street firm saying he has literally never seen it worse. |
And yet, we had Friday's squeeze (as we hinted on TheoTrade before the market opened Friday). |
The S&P and Nasdaq both ripped 2% higher. NVIDIA surged almost 8%. |
It was the kind of violent snapback that made you wonder whether the selling was finished or just pausing for air. My bet is on the latter… especially after Japan's snap election showed their willingness to just keep printing money. |
But which is it? That's what this week should answer. And there's a lot coming. |
The Wednesday Jobs Number (and Why I Don't Trust It) |
The January employment report finally drops on Wednesday, five days late, thanks to the brief government shutdown that ended February 3. |
The consensus estimate calls for 70,000 nonfarm payroll additions and a steady 4.4% unemployment rate. |
I'm not buying whatever number they print. Here's why. |
Every leading labor indicator has been flashing the same warning. Private payroll growth measured by ADP came in at just 22,000 for January, roughly half of expectations. |
The latest JOLTS data showed December job openings collapsing to levels we haven't seen since the worst of the pandemic. And the Challenger layoff report showed January announcements at their highest since 2009. |
The labor market isn't crashing. It's slowly losing altitude. |
And those are the conditions that don't show up in headlines until something breaks. |
If the number disappoints, the market has to make a choice. Is this the kind of weakness that forces the Fed to cut (bullish), or is this the economy genuinely rolling over (not bullish at all)? |
I'll be watching the bond market's reaction more closely than the number itself. |
This is exactly the kind of week where our momentum work at TheoTrade earns its keep. |
When the data is ambiguous, the math underneath the market tells you what the headlines can't. |
If you're not watching the morning show this week, you're navigating this blind. |
Friday's CPI Print Could Move Everything |
Consumer prices for January land on Friday. Wall Street expects a 0.3% monthly increase and a 2.5% year-over-year increase. |
This matters more than usual because the Fed has painted itself into a corner. A hot number kills any hope of rate relief, which means the softening labor market gets no policy support. |
A cool number reopens the door to cuts and gives risk assets room to rally. Those two outcomes are miles apart, and we won't know which one we're getting until Friday morning. |
Keep in mind… even the expected 2.5% annual rate is still above the Fed's 2% target. The last stretch of the inflation fight has been brutal. |
And the market may be pricing in a victory lap that hasn't been earned yet. |
The AI Reckoning Continues |
The story underneath all of this is the ongoing repricing in technology. |
The hyperscalers have now collectively pledged roughly $650 billion in AI capital expenditure across their recent earnings calls. That figure is staggering. |
And the market's reaction has been to ask the uncomfortable question… does the return on that spending actually justify the investment? |
The money is flooding into AI infrastructure. But companies disrupted by AI are being repriced in real time. A 23% decline in the software ETF since January is not a correction. It's the market deciding that an entire category of businesses is worth structurally less than it was three months ago. |
I've written about six sectors beyond software that AI hasn't repriced yet: staffing firms, business process outsourcing companies, advertising holding companies, insurance carriers, professional services, and real estate brokerages. |
The software selloff is the template. Those industries are next. |
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Bitcoin's Identity Crisis |
Bitcoin dropped 12% in two days last week, falling below $65,000 and erasing every dollar of its post-election gains. |
Strategy reported a $17.4 billion quarterly operating loss. And Richard Farr at Pivotus Partners published a $0 price target, arguing Bitcoin has failed as a dollar hedge and remains "just a speculative instrument correlated to the Nasdaq." |
Nope… that's not right. Bitcoin is a pressure valve linked to global liquidity. We explained it this week, noting that we're heading into "Crypto Winter" as we eye the top of the liquidity cycle in October. |
An asset class dominated by momentum chasers will experience momentum crashes. Bitcoin bounced back to $70,000 on Friday, but absent a real catalyst (like the CLARITY Act actually passing the Senate), the same dynamics will repeat. |
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My Watchlist |
Wednesday is the day to watch... |
The jobs report drops in the morning, and Cisco, McDonald's, Shopify, and AppLovin all report that day. |
If employment disappoints while earnings calls confirm AI disruption is accelerating, Friday's inflation number becomes a coin flip for the entire market. |
I'm tracking Robinhood and Coinbase for real-time reads on crypto capital flows. |
Applied Materials for the state of the semiconductor spending cycle. |
Airbnb for any signal on whether the consumer is still spending. And McDonald's… because when McDonald's misses on traffic, it tells you the consumer is pulling back at every price point. That matters. |
FedEx also holds its Investor Day on Wednesday. |
They're outlining the multiyear plan and the freight business separation. Logistics volumes are one of the most honest economic indicators we have. What FedEx says about demand trends this week will be more informative than most government data. |
And watch the Super Bowl fallout. |
DraftKings and FanDuel have seen the house lose to the betting public the last two years running. If it happens again, those stocks feel it immediately. |
I'll be breaking all of this down live on TheoTrade's morning show starting tomorrow. The charts, the signal, the earnings reactions in real time. If this is the kind of week where positioning matters (and it is), that's where you want to be. |
Stay positive, |
Garrett Baldwin |
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