1. Moving the markets

The Dow Jones Industrial Average took a break on Monday after hitting new highs in a rally driven by artificial intelligence stocks. Apple dropped more than 2% after the European Union slapped it with a $2 billion fine for abusing its market power in music streaming.

The Nasdaq Composite, which is loaded with tech stocks, reached a record high on Friday, breaking its previous peak from 2021. It was the last of the major stock indexes to do so this year.

This week, traders will be watching Federal Reserve Chair Jerome Powell for hints on where interest rates are headed. He will give updates on monetary policy to the House on Wednesday and to the Senate on Thursday.

On Wednesday, we will also get some data on the job market, with the ADP Employment Survey and the January job openings report. On Friday, we will see how many jobs were added or lost in February.

Today, gold and bitcoin shone brightly, reaching new closing highs, as investors expected lower interest rates and more money printing from the Fed. Gold defied the low inflation narrative and bitcoin broke $67,000, eyeing its old record.

Meanwhile, stocks were mostly flat, with small caps rising and falling in sync with the European market. A late sell-off pushed the Nasdaq to the bottom of the pack, making it the worst performer of the day.

Bond yields went up, the dollar went down, but both stayed within their recent ranges. NVDA, however, kept going up, adding another 6% to its price.

With this surge, NVDA is almost catching up with Cisco’s historical highs.

Will NVDA make history or repeat it?

1. Moving the markets

The S&P 500 edged up on the last day of February, as investors shrugged off an inflation report that met expectations and looked at some upbeat consumer spending data.

The Fed’s favorite inflation indicator, the core PCE index, rose by 0.4% in January and 2.8% year-over-year, matching the Dow Jones estimates. The headline PCE index, which includes food and energy, also matched the forecasts, rising by 0.3% monthly and 2.4% annually.

This was good news for the bulls, who feared that inflation would spike and force the Fed to delay or reverse its rate cuts. They came back to the market and lifted the indexes.

On the other hand, pending home sales disappointed in January, falling by 4.9% instead of rising by 2% as expected. Mortgage rates fluctuated and dampened the demand for houses.

February ended with a green month for the three major averages, despite some recent dips that cast doubt on the durability of the AI-led rally.

ZeroHedge summed up February like this:

Cryptos rocked, stocks rolled, bonds flopped, and rate-cut hopes dropped.

The odds of a rate cut in March went from 60% to zero, and the odds of a rate cut in May went from 100% to 18%. July is now the most likely month for a rate cut.

The MAG7 stocks gained more than 7% in February, but they stalled after the initial surge. As the rate-cut hopes faded and the economic data improved, bond yields climbed, the dollar strengthened for the second month in a row, while gold ended February flat. Oil prices rose with WTI nearing $79.

The real action was in crypto, where Ethereum beat Bitcoin (+49% vs. +45%) and the latter almost reached $64,000. The Nasdaq still follows the pattern of 1999-2001, but it raises this question:

Will March be a lion or a lamb?

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!