4 reasons we view last weeks -5% decline in Momentum stocks as only a "flesh wound" Array ( [cookie] => db9e4c-54f3b0-559db5-6ce8c8-b1b976 [current_usage] => 2 [max_usage] => 2 [current_usage_crypto] => 1 [max_usage_crypto] => 2 [lock] => [message] => [error] => [active_member] => 0 [subscriber] => 0 [role] => [visitor_id] => 58442 [reason] => Usage under limits [method] => ) 1 and can accesss 1

VIDEO: We view the sell-off in momentum stocks/broad equities (last 2 days of last week) as a flesh wound.  We highlight 4 reasons this week could see a recovery

Please click below to view our Macro Minute (duration: 5:53).

The last 2 trading days of last week saw a crushing decline in momentum stocks. MTUM -0.68%  (MSCI Momentum ETF) fell 5% in two days (whoa) and momentum stocks like PLTR -10.57%  HIMS 5.18%  HOOD -2.48%  fell 20% or more. As we discuss below, we view this decline as transitory and see 4 reasons for a bounce in the near-term:

• Multiple factors fueled the decline on Thu-Friday, but the 3 we would highlight as primary culprits:
  – WMT -0.64%  soft guidance for 2025 as it fuels fears of a weakening consumer
  – Point72’s Steve Cohen on CNBC Fri am spoke of the negative impacts of tariffs (as a tax) and DOGE (austerity measure essentially) and thus a potential headwind for stocks
  – TD Cowen’s research report highlighting channel checks shows MSFT -1.03%  canceling leases for data center capacity, raising concerns about AI spending visibility.
• I am sure other factors were at work, but these are the most visible to us. And while there are merits to these concerns, we also believe these concerns are likely only “flesh wounds” to the positive for these equities.
• Here are the 4 reasons we see this only as a “flesh wound”:
  – first, NVDA -3.15%  reports Wed (after close) this week, likely a positive event
  – second, Friday is Jan Core PCE and likely affirms inflation tracking lower
  – third, if DOGE leads to economic softening, odds of a May cut should jump to 100%
  – fourth, MTUM -0.68%  has seen 6 -5%-plus declines in past 7 months, each staged a recovery
• On Jan Core PCE, the YoY is expected to be 2.6% and vs 2.8% in Dec. Inflation is moving towards the Fed target. While inflation expectations seem to be rising as U Mich survey shows, this has not been corroborated by the NY Fed survey. And we discussed in the past, political affiliation seems to distort respondent views on inflation.
• Mark Newton, Head of Technical Strategy, notes that he doesn’t expect the Mag7 to be “lagging much longer” and he believes a possible inflection point is the Wed NVDA earnings release. Obviously, this is a major event.
• Over the last 2 trading days, the odds of a May 2025 cut have surged from 10% to 27%. This is reflecting some concerns about consumer softness, but also is a reminder the Fed “put” is in play. And if DOGE effectively leads to weaker economic growth, the Fed “put” is in play. And we expect the odds of a May cut to surge.
• As for the macro calendar this week, besides PCE on Friday:
  – 2/24 Mon 8:30 AM ET: Jan Chicago Fed Nat Activity Index    -0.05e
  – 2/24 Mon 10:30 AM ET: Feb Dallas Fed Manuf. Activity Survey    6.4e
  – 2/25 Tue 9:00 AM ET: Dec S&P CS home price 20-City MoM    0.40%e
  – 2/25 Tue 10:00 AM ET: Feb Conference Board Consumer Confidence    103e
  – 2/26 Wed 10:00 AM ET: Jan New Home Sales    675ke
  – 2/26 Wed 3:00 PM ET: Fireside Chat with Anthony Scaramucci
  – 2/27 Thu 8:30 AM ET: 4Q S 2024 GDP Annualized QoQ    2.3%e
  – 2/27 Thu 8:30 AM ET: Jan P Durable Goods Orders MoM    2.0%e
  – 2/28 Fri 8:30 AM ET: Jan Core PCE MoM    0.29%e
• There is also Fed speak this week, no Powell though:
  – 2/25 Tue 4:20 AM ET: Logan Speaks at Balance Sheet Conference   
  – 2/25 Tue 11:45 AM ET: Barr Gives Remarks on Financial Stability With Q&A   
  – 2/25 Tue 1:00 PM ET: Barkin Speaks on Inflation   
  – 2/26 Wed 12:00 PM ET: Bostic Speaks on Economic Outlook, Housing   
  – 2/27 Thu 9:15 AM ET: Schmid Gives Remarks at USDA Event   
  – 2/27 Thu 10:00 AM ET: Barr Speaks on Novel Activity Supervision   
  – 2/27 Thu 11:45 AM ET: Bowman Speaks on Community Banking   
  – 2/27 Thu 1:15 PM ET: Hammack Gives Keynote Speech at Conference   
  – 2/27 Thu 3:15 PM ET: Harker Gives Speech on Economic Outlook   
  – 2/28 Fri 10:15 PM ET: Goolsbee Speaks in Moderated Q&A   
• More broadly speaking, we do not think a “major top” is in place. We discussed 3 reasons last week for our view, but the first one (below) is the most important:
  – first, Investors are “bearish” while S&P 500 is at all-time high
  – second, there is $7 trillion of cash on sidelines
  – third, this is a further sign that the bull market of 2023-2024 continues
• Basically, we just don’t expect investors to be bearish at the top. And this is what has been in place for the past few weeks. Investors have turned bearish as the equity markets made a new high. AAII Net bulls is a good proxy for sentiment (we consider this the best measure of retail sentiment).
• There are only 11 prior instances the S&P 500 is within 1% of a 52-week high while net bulls is -15 or worse:
  – in past 40 years, only 11 instances, or 0.5% of readings
  – median 12M forward gain +15.7%
  – win-ratio 83%
• Since 2009, there are 6 such readings, week of:
  – 11/9/09 +11%, next 12 mos
  – 10/18/12 +20%
  – 4/11/13 +14%
  – 3/10/17 +17%
  – 8/10/20 +32%
  – 12/7/21 -16%
• So in the last 15 years, this has been a great tactical signal and as you can see above, with really good returns. After all, if investors are skeptical of markets at all-time highs, we believe the odds of an actual high in play is low. That is, this is a contrarian bullish signal.

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

But the bigger message is that we expect investors to buy the dip. We believe this should be the key takeaway this week. And secondarily, that the market participation is broadening beyond MAG7.

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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45 SMID Granny Shot Ideas: We performed our quarterly rebalance on 2/18. 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 Tame
• 2/18 8:30 AM ET: Feb Empire Manufacturing Survey Tame
• 2/18 10:00 AM ET: Feb NAHB Housing Market Index Tame
• 2/18 4:00 PM ET: Dec Net TIC Flows Tame
• 2/19 9:00 AM ET: Jan M Manheim Used Vehicle index Tame
• 2/19 2:00 PM ET: Jan FOMC Meeting Minutes Dovish
• 2/20 8:30 AM ET: Feb Philly Fed Business Outlook Tame
• 2/21 9:45 AM ET: Feb P S&P Global Manufacturing PMI Tame
• 2/21 9:45 AM ET: Feb P S&P Global Services PMI Tame
• 2/21 10:00 AM ET: Feb F U. Mich. Sentiment and Inflation Expectation Hot
• 2/21 10:00 AM ET: Jan Existing Home Sales Tame
• 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:

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