Equities finally stage upside breakout on "bad news" = 2025 proving stocks remain resilient and resistant (so far) to large sell-off. Array ( [cookie] => ca212b-a03f54-353d1e-963bc5-c0a2bf [current_usage] => 1 [max_usage] => 2 [current_usage_crypto] => 0 [max_usage_crypto] => 2 [lock] => [message] => [error] => [active_member] => 0 [subscriber] => 0 [role] => [visitor_id] => 0 [user_id] => 0 [reason] => Usage under limits [method] => ) 1 and can accesss 1

VIDEO: Equity markets staged what we view as an upside breakout on positive fundamental news and encouraging sentiment developments

Please click below to view our Macro Minute (duration: 4:20).

Equities managed to stage an upside breakout today, breaking the downtrend in place since mid-Dec (10 weeks now). Mark Newton, Head of Technical Strategy, flagged this at 3:07pm ET today.

• This upside breakout is taking place even as equities have had to absorb some recent “bad headlines” and this is my key observation so far in 2025:
  – The stock market has had many opportunities sell-off. 
  – But it has been resilient

• After languishing for 10 weeks (mid-Dec to now) and after multiple opportunities to sell-off (3 down gaps in just the past 3 weeks), there are 4 reasons we see this upside breakout as grounded in fundamentals and sentiment:
  – first, Trump administration today announced tariffs will not go into effect for several months
  – this pushes off the time pressures
  – second, Jan PPI came in “hot” at +0.28% (vs Dec) but points to a tame Jan PCE
  – this supports why stocks essentially “dismissed” yesterday’s “hot” CPI
  – third, the upside breakout was important technically as per Mark Newton
  – he has been waiting for resolution of this pattern
  – fourth, capitulatory level sentiment readings confirm this upside potential
  – AAII % net bulls fell to -18.9% this week, the worst reading since Nov 2023
• As we highlight below, a collapse in retail sentiment (AAII, American Association of Individual Investors) is a reliable signal of strong forward returns. Take a look at the analysis below (see chart):
  – when AAII % net bulls (% bulls less % bears) in bottom decile
  – 90%-95% %-tile: between -24% to -16%
  – 6M forward return: +7.9%, win-ratio 78%
  – 12M forward return: +17.7%, win-ratio 84%
• These are very strong forward returns and above the 75-year rolling avg of 7.9% 12M forward returns. So there is a meaningful signal from sentiment getting this bearish.
• As for Jan PPI, this was “hot” versus December, this implies a softer PCE (personal consumption expenditures) for Jan, the Fed’s preferred measure of inflation. The X.com tweet by Nick Timiraos highlights that economists now see Jan Core PCE:
  – Jan Core PCE +0.28% MoM consensus
  – Jan Core CPI +0.45% MoM
  – so core PCE tells a far more muted inflation story
  – this suggests that the Jan CPI likely impacted by residual seasonality
• And this also explains why stocks seemingly dismissed the “hot” Jan CPI report yesterday. Please see our note and video from yesterday for our take.

• In terms of the incoming macro data this week, it has been overall mixed, but the good news is that equities have been rising on “bad news” = investors are already de-risked:
  – 2/10 Mon 11:00 AM ET: Jan NYFed 1yr Inf Exp    3.00% vs 3.10%e
  – 2/11 Tue 6:00 AM ET: Jan Small Business Optimism Survey    102.8 vs 104.7e
  – 2/11 Tue 10:00 AM ET: Powell Testifies to Senate Banking
  – 2/12 Wed 8:30 AM ET: Annual CPI Revision & Jan Core CPI MoM  0.45% vs 0.29%e
  – 2/13 Wed 10:00 AM ET: Powell Testifies to House Financial Services
  – 2/13 Thu 8:30 AM ET: Annual PPI Revision & Jan Core PPI MoM   0.28% vs 0.29%e
  – 2/14 Fri 8:30 AM ET: Jan Retail Sales    -0.2%e

• Keep in mind the next FOMC rate decision is not until March 19th. So while markets will be buffeted by inflation-related concerns, the Fed will not be required to calibrate monetary policy for another 6 weeks. This removes volatility and a reason stocks can gain traction from here.

• Finally, earnings seaons (4Q24) remains solid. Tonight, after the close 4 major companies reported:
  – AMAT -1.02%  -4% after hours
  – PANW 0.30%  -5% after hours
  – ABNB -1.86%  +15% after hours
  – TWLO -2.11%  -5% after hours (SMID Granny Shot)
• While these stocks are mostly down after reporting (Thu), this does not really alter the picture that EPS growth in 4Q24 has accelerated +17% YoY. And given the positive inflection in the ISM manufacturing to above 50, is pointing to strengthening EPS growth in 2025.

BOTTOM LINE: Investors are “buying the dip” as 2025 is tracking better than expected

Overall, there are six reasons that show 2025 tracking better than our base case:

• Barometer “first 5 days” positive = 82% win-ratio
• Sentiment capitulation on Dec to Jan chop = good
• Inflation tracking “softer” than consensus view
• Fears of “day 1 tariffs” overblown = USD weaker
• Cyclicals leading YTD = risk-on signal
• January barometer “positive” = 89% win-ratio

• January 2025 closed +2.7%. This is the January barometer “as January goes, so goes the year”:
  – The January barometer is as follows:
  – If January positive:
  – Median FY +19%, 89% win-ratio
  – If January negative:
  – Median FY +0%, 50% win-ratio
• The top sector ideas remain:
• Bitcoin
• Small-caps
• Financials
• Industrials
• Technology

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44 SMID Granny Shot Ideas: We performed our quarterly rebalance on 11/25. Full stock list here -> Click here

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Key incoming data February:

• 2/3 9:45 AM ET: Jan F S&P Global Manufacturing PMI Tame
• 2/3 10:00 AM ET: Jan ISM Manufacturing PMI Tame
• 2/4 10:00 AM ET: Dec JOLTS Job Openings Tame
• 2/4 10:00 AM ET: Dec F Durable Goods Orders Tame
• 2/5 8:30 AM ET: Dec Trade Balance Tame
• 2/5 9:45 AM ET: Jan F S&P Global Services PMI Tame
• 2/5 10:00 AM ET: Jan ISM Services PMI Tame
• 2/6 8:30 AM ET: 4Q P Non-Farm Productivity Tame
• 2/6 8:30 AM ET: 4Q P Unit Labor Costs Tame
• 2/7 8:30 AM ET: Jan Non-Farm Payrolls Tame
• 2/7 9:00 AM ET: Dec F Manheim Used Vehicle index Tame
• 2/7 10:00 AM ET: Feb P U. Mich. Sentiment and Inflation Expectation Hot
• 2/10 11:00 AM ET: Jan NY Fed 1yr Inf Exp Tame
• 2/11 6:00 AM ET: Jan Small Business Optimism Survey Tame
• 2/12 8:30 AM ET: Jan CPI Hot
• 2/13 8:30 AM ET: Jan PPI Hot
• 2/14 8:30 AM ET: Jan Retail Sales Data
• 2/18 8:30 AM ET: Feb Empire Manufacturing Survey
• 2/18 10:00 AM ET: Feb NAHB Housing Market Index
• 2/18 4:00 PM ET: Dec Net TIC Flows
• 2/19 9:00 AM ET: Jan M Manheim Used Vehicle index
• 2/19 2:00 PM ET: Jan FOMC Meeting Minutes
• 2/20 8:30 AM ET: Feb Philly Fed Business Outlook
• 2/21 9:45 AM ET: Feb P S&P Global Manufacturing PMI
• 2/21 9:45 AM ET: Feb P S&P Global Services PMI
• 2/21 10:00 AM ET: Feb F U. Mich. Sentiment and Inflation Expectation
• 2/21 10:00 AM ET: Jan Existing Home Sales
• 2/24 8:30 AM ET: Jan Chicago Fed Nat Activity Index
• 2/24 10:30 AM ET: Feb Dallas Fed Manuf. Activity Survey
• 2/25 9:00 AM ET: Dec S&P CoreLogic CS home price
• 2/25 10:00 AM ET: Feb Conference Board Consumer Confidence
• 2/26 10:00 AM ET: Jan New Home Sales
• 2/27 8:30 AM ET: 4Q S GDP
• 2/27 10:00 AM ET: Jan P Durable Goods Orders
• 2/28 8:30 AM ET: Jan PCE Deflator

Economic Data Performance Tracker 2025:

Economic Data Performance Tracker 2024:

Economic Data Performance Tracker 2023: