1. Moving the markets

Investors were cautious today as they awaited a crucial inflation report coming out later this week. The report, based on the PCE index for January, is the Fed’s favorite way to measure inflation. Until then, the market is in limbo, waiting for a signal.

The market is also trying to extend its recent gains that pushed the Dow and the S&P 500 to record highs. But this week, the market has stumbled, falling slightly. The major indexes are heading for their second losing week in three.

The downturn, especially for the tech sector, has made me wonder if the rally driven by AI enthusiasm can last. I doubt it, because most of the stock gains from AI are based on hype and marketing. Only a few companies have actually seen a real boost in revenue from AI.

The real action today was in crypto space, where I have been an investor since 2017. Now that Bitcoin ETFs are available, I am also using this unique asset class in my advisory practice.

Bitcoin soared a whopping 13% to almost $64,000 before a wave of selling pressure (likely from futures) caused Coinbase mayhem, erasing $5,000 of the gains before bouncing back up again. By the end of the US equity trading session, bitcoin was at $60,000, still up 6% and close to breaking its all-time high.

Today, apart from crypto, stocks were lower led by Small Caps and Nasdaq. Most of the selling pressure came at the European open (and we recovered into the European close), but those recovery gains didn’t last. The Dow ended the day as the bestof the worst.

Bond yields fell across the board, the dollar rebounded from its recent slide, gold dropped and rose to close in the green, and oil prices gave up yesterday’s gains.

Economically, as ZeroHedge noted, the consumer is still struggling, as the Credit Manager’s survey shows that the rate of “rejections” for credit applications and the number of accounts moved to “collections”, is spiking to 2008 levels.

Yikes!

1. Moving the markets

It was a dull day for the stock market, as the major indexes barely moved, and the rally took a nap. Investors were waiting for some important data coming out later this week, but they got a surprise in the last hour when the S&P 500 and the Nasdaq turned green, thanks to another short squeeze.

The market had no clear direction, as different sectors did their own thing. This followed a down day on Monday that erased the record highs that the Dow and the S&P 500 reached last week, after Nvidia impressed everyone with its earnings.

The U.S. Department of Commerce reported on Tuesday that orders for durable goods, such as cars and appliances, fell more than expected in January, mainly because people didn’t want to buy transportation.

The latest consumer confidence numbers also dropped, as people worried about the job market and the political situation. The Consumer Confidence Index fell to 106.7, which was lower than the revised 110.9 in January and below the forecast of 115.1. These numbers come before the PCE index, which measures inflation, and the personal income and spending data, which will be released on Thursday.

Traders will keep an eye on these figures to see how the economy is doing and what the Fed might do next.

Oil prices soared to their highest level since November, the dollar kept falling, gold stayed steady, and bond yields were mixed. Durable goods orders had their worst month since the Covid lockdowns, while US Home prices kept rising for the 11th month in a row in December.

The economy was sending mixed signals, so we’ll have to wait and see if the upcoming data can clear things up.

Or will we be left in the dark?

1. Moving the markets

The S&P 500 took a small step back from its record high on Friday, as investors waited for the latest inflation data. Amazon replaced Walgreens in the Dow, boosting the index’s tech and retail exposure. The Dow is based on stock prices, not market values, so Amazon’s hefty share price will have a big impact.

Treasury yields rose on Monday, hurting the stock market. The 10-year yield reached 4.279%, up slightly from Friday. Investors are wondering if the AI boom can continue amid economic and inflation uncertainties.

They are also looking forward to the Fed’s favorite inflation measure, the PCE index, which will be released on Thursday. Wall Street is feeling more optimistic about stocks after a strong earnings season. But the Fed is still watching inflation closely and may not cut interest rates anytime soon. The market is lowering its hopes for a rate cut this year.

There are more economic reports coming up, such as durable goods orders, wholesale inventories, consumer spending, and PCE numbers. They will give more clues about the state of the economy and inflation.

The bond market was not happy with the 2-year and 5-year auctions, which pushed yields higher across the board. This reversed some of the gains from Friday.

The MAG7 stocks, which include Microsoft, Apple, Google, Amazon, Facebook, Netflix, and Tesla, were weak after Nvidia dropped from its peak. But the most shorted stocks rallied, thanks to some aggressive buying. They helped the small-cap stocks, but not enough to lift the major indexes into positive territory.

The dollar and gold were both flat for the second day in a row, while crude oil bounced back from Friday’s losses.

Cisco and Nvidia are still following their historical patterns.

Will they keep doing so?