Stagflation Concerns Weigh On Markets, Cryptos And Gold Show Mixed Reactions

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[Chart courtesy of MarketWatch.com]

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After four consecutive losing sessions, the S&P 500 and other major indexes found some stability as bullish sentiment returned to Wall Street, at least initially.

The Nasdaq led the way ahead of Nvidia’s earnings announcement, which is due after today’s close. In anticipation of a positive report, Nvidia gained 3.5% after a 3% advance on Wednesday, although the stock is still down 2% year-to-date.

Nvidia, a bellwether and favorite tech stock, plays a crucial role in the broader markets and the AI sector. Its performance is often seen as an indicator for equities in general, and any weakness could set a bearish tone for the broader market, especially given the recent weak economic reports.

This morning’s rally was short-lived as the bears regained control by mid-day, pulling the major indexes off their highs. Only the Nasdaq managed to close moderately in the green.

Disappointing macroeconomic data, including a plunge in New Home Sales, reinforced the stagflation scenario, pushing rate-cut expectations higher and bond yields lower.

Cryptocurrencies followed the downward trend, with Bitcoin seeking support around its 200-day moving average. Bitcoin’s major support level appears to be around $80,000, assuming it continues to follow the path of global liquidity.

Gold made a comeback after a late-session dip attracted buyers, successfully defending its $2,900 support level.

The next critical data point to watch is Friday’s Personal Consumption Expenditure (PCE) price index, the Fed’s preferred inflation gauge. Depending on the results, the PCE could significantly impact the markets.

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Consumer Confidence Plummets, Inflation Expectations Surge: Stagflation Fears Rise

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

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The markets broadly declined, with the S&P 500 falling for the fourth consecutive day and the Nasdaq leading the downturn. The Dow fared the best, managing to close slightly in the green.

Economic concerns took center stage as the latest Consumer Confidence survey plummeted from 105.3 to 98.3, well below the expected 102.5. This marks the lowest level since 2024 and is near the bottom of its range since 2022, as noted by ZH.

Simultaneously, inflation expectations surged, highlighting the risk of “Stagflation”—a scenario I’ve frequently mentioned. This comes on the heels of flat manufacturing and retail sales reports.

Trade tensions are escalating, with tariffs on Canada and Mexico set to proceed after the current 30-day moratorium ends. Traders will need to find new catalysts to lift equities out of their slump.

Despite a nearly 12 basis point drop in the 10-year bond yield to 4.30%, comeback attempts failed today. All bond yields ended lower, with bonds serving as a safe haven.

Bitcoin ETF outflows continued, dragging the cryptocurrency below $90k. All markets experienced heavy selling, typical of the seasonally weakest period of the year. Even the Mag 7 stocks suffered, losing $1.5 trillion in market cap year-to-date and over $900 billion in the past week.

The dollar declined, breaking its 100-day moving average, while oil prices plunged below $70. Gold also retreated amid growing uncertainty but held above the $2,900 level.

The growth scare has increased expectations for rate cuts amid calls for lower rates. Will the Fed respond?

It’s fascinating to me to observe the synchronized behavior of Bitcoin and global liquidity with a slight lag. As this chart shows, Bitcoin could drop as low as $80k before rebounding and heading back toward record highs.

Will history repeat itself?

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Economic Weakness And AI Concerns Weigh On Markets

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

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Despite opening on a positive note, the major indexes wavered and fell below their respective unchanged lines. The Dow showed the most resilience, ending as the only index to close in the green.

The tech sector experienced the steepest decline, with companies like Palantir, Nvidia, and Microsoft pulling back. A report indicating that Microsoft is cutting spending on data centers raised concerns about potential weakness in the AI sector.

Adding to the bearish sentiment, February data pointed to economic weakness. The US Service sector contracted for the month, and the Consumer Sentiment index came in below expectations.

Key earnings reports are due this week, with Nvidia’s report on Wednesday being highly anticipated. Given Nvidia’s close ties to AI chips, any weakness in this sector could impact the company’s outlook.

Today’s macroeconomic data highlighted that growth is fading, and even AI stocks are retreating.

Slipping bond yields failed to support equities or Bitcoin, which fell below the $94k level. Gold emerged as the winner, gaining, and closing above $2,965, despite the dollar recovering from an early sell-off.

Traders now foresee a weaker period of growth for the US, which may prompt the Fed to lower rates sooner than expected. This has pushed rate-cut expectations to a two-month high.

However, will the Fed ignore inflation pressures just to appease the markets?

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ETFs On The Cutline – Updated Through 02/21/2025

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Do you want to know which ETFs are hot and which ones are not? Then you need my High-Volume ETF Cutline report. It tells you how close or far each of the 311 ETFs I follow is from its long-term trend line (39-week SMA). These are the ETFs that trade more than $5 million a day, so they are not some obscure funds that nobody cares about.

The report is split into two parts: The winners that are above their trend line (%M/A), and the losers that are below it. The yellow line is the line of shame that separates them. You can see how many ETFs are in each group and how they have changed since the last report (215 vs. 201 current).

Take a peek:

The HV ETF Master Cutline Report

If you are confused by some of the terms we use, don’t panic. I have a helpful Glossary of Terms for you.

If you want to learn more about the Cutline method and how it can make you rich (or at least less poor), read my original post here.

ETF Tracker Newsletter For February 21, 2025

Ulli ETF Tracker Contact

ETF Tracker StatSheet          

You can view the latest version here.

GOLD SHINES AMID MARKET TURMOIL, BITCOIN STUMBLES ON CHINA NEWS

[Chart courtesy of MarketWatch.com]

  1. Moving the market

A weak consumer sentiment reading and a nearly 9% drop in UnitedHealth stock combined to dampen any bullish sentiment, causing major indexes to dive early on.

According to the Wall Street Journal, UnitedHealth is under investigation by the Justice Department, with more information to come. This pullback marks the stock’s worst decline in five years. However, a comeback may be on the horizon after the company labeled the WSJ’s report on Medicare billing practices as “misinformation.”

The Michigan consumer sentiment index fell to 64.7 in January, plunging into contraction territory, which represents a 10% drop and was worse than expected due to fears of higher inflation ahead.

Additionally, January U.S. existing home sales declined by 4.9% month-over-month, compared to expectations of a 2.6% drop, as mortgage rates rose. Sales fell the most in the West and South, partly due to destructive wildfires and severe winter weather.

With markets struggling all week and entering the seasonally weakest period of the year, traders are increasingly concerned with the soft data points, as indexes slump despite the S&P’s recent all-time high.

In the end, nothing worked for the bulls. Multi-trillion-dollar options expirations, China’s discovery of a new coronavirus, and the upcoming elections in Germany this weekend all contributed to major indexes closing lower for the week.

These factors pulled down the U.S. Macro Surprise Index, which neared six-month lows, with the much-feared “stagflation” premise reappearing. The most shorted stocks were slammed to five-week lows, while the mega-tech sector retreated to its recent trading range. Bond yields headed lower as rate-cut expectations rebounded from their recent sell-off.

Gold remained the unshakable asset class, closing higher for the eighth straight week while scoring a new record high. The dollar lost momentum and dropped, while Bitcoin suffered a similar fate, crossing $99k to the upside before the China news pulled the rug out from early bullish sentiment.

As Zero Hedge pointed out, Bitcoin follows global liquidity and may have more downside momentum left before racing back into record territory.

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 02/20/2025

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ETF Data updated through Thursday, February 20, 2025

How to use this StatSheet:

  1. Out of the 1,800+ ETFs out there, I only pick the ones that trade over $5 million per day (HV ETFs), so you don’t get stuck with a lemon that nobody wants to buy or sell.
  1. Trend Tracking Indexes (TTIs)

These are the main indicators that tell you when to buy or sell Domestic and International ETFs (section 1 and 2). They do that by comparing their position to their long-term M/A (Moving Average). If they cross above, and stay there, it’s a green light to buy. If they fall below, and keep going, it’s a red light to sell. And to make sure you don’t lose your shirt if things go south, I also use a 12% trailing stop loss on all positions in these categories.

  1. All other investment areas don’t have a TTI and should be traded based on the position of each ETF relative to its own trend line (%M/A). That’s why I call them “Selective Buy.” In other words, if an ETF goes above its own trend line, you can buy it. But don’t forget to use a trailing sell stop of 12%, or less if you’re feeling nervous.

If some of these words sound like Greek to you, please check out the Glossary of Terms and new subscriber information in section 9.

  1. DOMESTIC EQUITY ETFs: BUY— since 11/21/2023

Click on chart to enlarge

This is our main compass, the Domestic Trend Tracking Index (TTI-green line in the above chart). It has broken above its long-term trend line (red) by +4.75% and is in “Buy” mode as posted.

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