Signals
Valentine’s Day is around the corner, and the market is giving us mixed signals. Amid the latest tariff drama and misfiring Trump trades, how can we tell whether to make a move?
We started the week looking at one of the less serious tools on Wall Street: the Super Bowl Indicator. It’s about the two conferences that comprise the National Football League: NFC and AFC. The thesis is that if an NFC team wins the game, the S&P 500 rises; if an AFC team wins, the index falls. Its success rate has been so inconsistent lately, that market participants probably thought they were better off betting against it this time around. But sure enough, the NFC’s Philadelphia Eagles beat the AFC’s Kansas City Chiefs on Sunday, and the market opened higher on Monday.
Of course, that probably has more to do with the other themes driving the market right now: corporate earnings, trade policy and interest rates. To gauge portfolio impact, there are a few reliable metrics we might use – even if they’re not as fun as the Super Bowl Indicator.
The S&P 500 is trading above its 200-day simple-moving average, signalling market momentum is still going strong. More than 67% of the companies in the index have reported Q4 earnings, and 77% of those firms have surprised with EPS ahead of estimates. Palantir ($PLTR) jumped 25% on a strong earnings outlook, while Pinterest ($PINS) saw its shares gain 22% after posting its first billion-dollar quarter.
Spotify ($SPOT) clocked its first full-year profit, so an earnings miss didn’t stop shares from rallying 13% after its report. That wasn't the case for Amazon ($AMZN): upbeat earnings failed to lift sentiments around a disappointing revenue forecast. On the bright side, it still might be on track to beat brick-and-mortar rival Walmart ($WMT) in revenue for the first time.
But the undisputed winner of earnings season so far has to be Meta ($META). Shares added US$274b in market cap over a 17-day winning streak – the longest for any Nasdaq 100 firm since 1990.
Other all-time highs don’t sound so good. A record 44% of S&P 500 companies discussed tariffs in their earnings calls. Goldman Sachs says the trade policy uncertainty index is now at its highest level since 2019. And all this tariff talk has made the once wildly popular Trump trades fall out of favour.
In terms of volatility, though, there’s nothing to write home about just yet. The Cboe Volatility Index (VIX) may be sitting above its one-year average, but it's not exactly at crisis levels.
As for the Fed’s next move, let's just say rate hikes of any kind are looking less likely after a weaker-than-expected jobs report last week. The U.S. economy added 143,000 jobs in January, and unemployment dipped to 4%. The CME Fed Watch tool shows traders are now placing higher odds on a June rate cut.
In uncertain times, it's a stock picker’s market. As you search for the perfect Valentine's gift, show your portfolio some TLC as well – and add some stocks that will love you back.
