Equities Climb As Traders Bet On Softer PCE Amid Trade Tensions

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

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Following yesterday’s hotter-than-expected Consumer Price Index (CPI) report, today’s Producer Price Index (PPI) numbers also exceeded expectations. The January PPI showed a 0.4% increase, surpassing the consensus of 0.3%. The core PPI, which excludes food and energy, rose by 0.3%, aligning with estimates.

Despite these increases, traders pushed equities higher, reasoning that these latest figures suggest a softer Personal Consumption Expenditures (PCE) price index than feared. The PCE, closely monitored by the Federal Reserve, is set to be updated tomorrow.

Global trade tensions remain a focal point as Trump announced reciprocal tariffs on imported goods from any country that imposes duties on U.S. imports. With India being a significant offender, this will make for an interesting meeting when Trump meets with India’s Prime Minister Modi.

In the end, bond yields tumbled, helping equities to rally, with the Mega-cap sector participating. However, U.S. Defense stocks declined following Trump’s comments about halving the defense budget.

The most shorted stocks rallied, supporting bullish sentiment, alongside the semiconductor sector. The dollar closed at a three-week low, which helped gold to bounce back.

Bitcoin slid but found support at $96,000, while crude oil experienced volatility but closed relatively unchanged.

After a choppy week, traders are eagerly anticipating tomorrow’s PCE release, which is expected to come in better than anticipated, potentially pushing bond yields lower and equity prices higher.

Will they be right?

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Fed’s Stance On Inflation Confirmed As CPI Surpasses Expectations

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

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The much-anticipated Consumer Price Index (CPI) report confirmed to me that the Federal Reserve’s decision to delay rate cuts was an acknowledgment that inflation remains a persistent issue.

In January, the CPI rose by 0.5% for the month, pushing the annual inflation rate to 3%, surpassing expectations of 0.3% and 2.9%, respectively. The core CPI, which excludes food and energy prices, increased by 0.45% for the month and 3.26% over the past 12 months, also exceeding forecasts.

As a result, the 10-year bond yield surged by over 12 basis points to 4.66% early in the session, dampening expectations for rate cuts in 2025. With the CPI rising for seven consecutive months, can it still be considered transitory?

Equities experienced a sharp decline early on, with several mega-cap stocks such as Amazon, Microsoft, and Alphabet falling. Consumer and bank stocks also slid due to concerns over reduced spending and a slowing economy. However, the Nasdaq managed to recover to its starting point.

On a positive note, Meta has rallied now for 18 consecutive days, marking the longest winning streak of any Nasdaq stock ever, as highlighted by ZH. During this period, the company has added $300 billion to its market cap.

The dollar spiked early in the session but lost all gains by the end, while Bitcoin initially dropped but then rallied back above its $97,000 level. Gold followed a similar pattern, with its ETF eking out a small gain.

As we reach the second half of February, a period that is typically weak seasonally, could this time be different?

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Gold Hits Record High, Markets Brace For Inflation Reports

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

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This morning, equities went through a moderate retreat as traders absorbed comments from Federal Reserve Chairman Powell.

He stated that “interest rates do not need to move quickly to ease monetary policy,” explaining that the Fed’s policy is now significantly less restrictive, reducing the urgency for adjustments.

Powell also described the economy as “strong overall” with a robust labor market, but he cautioned that, despite easing, inflation remains above the Fed’s 2% target.

The latest inflation data, including the Consumer Price Index (CPI) and Producer Price Index (PPI), are set to be released tomorrow and Thursday, respectively.

Throughout the session, the major indexes managed to recover their early losses, with the Dow and S&P 500 posting small gains, while the Nasdaq suffered a slight decline.

Stocks with the highest short interest lost their upward momentum and dropped sharply, while the Mega-cap tech sector traded sideways and ended nearly unchanged.

Rising bond yields added to the market’s challenges, negatively impacting the dollar. Bitcoin had a volatile day, initially rallying before reversing course and finding support at $95,000.

Meanwhile, gold continued to shine, hitting a new record high overnight before retreating towards the $2,900 level.

Overall, it was a session with minimal gains or losses, but with upcoming inflation figures, market momentum could shift quickly in either direction.

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Traders Eye Key Economic Data As Major Indexes Reverse Course And Gold Shines

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

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After ending last week on a negative note, the major indexes reversed course this morning, with the Nasdaq leading a broad rally while the Dow lagged.

Despite this positive start, traders remain uncertain about inflation and the potential economic impact of Trump’s newly announced blanket 25% tariff on all steel and aluminum imports, which took effect on Monday. Additionally, previously stated duties on China are set to go into effect today.

This week is packed with significant economic data releases, starting with the January Consumer Price Index (CPI) on Wednesday, followed by preliminary weekly jobless claims and the Producer Price Index (PPI) on Thursday. Federal Reserve Chairman Powell is also scheduled to address Congress tomorrow morning.

Crude oil prices surged over 2%, while the most shorted stocks provided a boost to equities but later retreated from their highs. The mega-cap tech sector continued its volatile trend, with today being an up day.

Bond yields were mixed, the dollar strengthened on Trump’s tariff announcement, and Bitcoin rebounded from the weekend’s weakness.

Gold continued its impressive performance, breaking solidly above $2,900 to reach a new record high and coming within striking distance of the $3,000 mark.

Can this magic level be reached this week?

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ETFs On The Cutline – Updated Through 02/07/2025

Ulli ETFs on the Cutline Contact

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 (178 vs. 182 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 7, 2025

Ulli ETF Tracker Contact

ETF Tracker StatSheet          

You can view the latest version here.

GOLD OUTPERFORMS MARKET, BITCOIN STRUGGLES BELOW $100K MARK

[Chart courtesy of MarketWatch.com]

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This morning, bond yields surged, with the 10-year yield spiking to 4.52%. This increase pulled the major indexes deep into the red, with the S&P 500 barely breaking even for the first week of February.

Adding to the market’s woes, consumer sentiment fell to 67.8, significantly below the expected 71.3, while inflation expectations soared in February.

The highly anticipated jobs report revealed that only 143,000 jobs were added in January. However, traders found some positive news: the unemployment rate dropped from 4.1% to 4%, and job numbers for November and December were revised upward significantly. Additionally, average earnings for January were higher than expected, raising concerns about rising inflation.

Overall, traders interpreted the wage growth increase as a sign of a healthy labor market, which might lead the Federal Reserve to maintain its current interest rate policy, rather than lowering rates to please the markets. Despite some positive surprises, the market was primarily driven by the rebound in inflation.

This week was crucial for Mega-Cap tech earnings, but the results were disappointing overall, causing the sector to lose approximately $625 billion. However, Meta stood out by extending its winning streak to 15 days. The short squeeze that occurred earlier in the week lost momentum today, while AI stocks began to recover from last week’s “DeepSeek” scare, which had previously tanked the sector.

Bond yields fluctuated throughout the week, ultimately ending higher, while the dollar experienced a rollercoaster ride. Crude oil prices slipped back to pre-election lows after a recent rise. Bitcoin hovered around the $100,000 mark all week but closed below it.

Gold was the top performer, ending the session with another record high and closing out a strong week as it approaches the $3,000 level.

Year-to-date, gold has outperformed the overall market, as measured by the S&P 500, by more than 3.5 to 1.

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