Key Takeaways
- Friday’s Rally Surprised Traders But Couldn’t Erase Weekly Market Losses.
- Tech Stocks Struggled While Consumer Staples Showed Strength Amid Uncertainty
- Tariffs, Earnings, And Jobs Report Could Shape Market Direction Ahead
Markets staged a powerful rally on Friday, but it wasn’t enough to offset losses earlier in the week. When it was all said and done, The S&P 500 fell 1% for the week. The Nasdaq Composite was hardest hit, falling 3.5%. Small cap stocks didn’t fare much better, dropping 1.4%. The one bright spot on the week was the Dow Jonest Industrial Average, which gained 1%.
The strength of Friday’s rally caught a number of traders off guard, myself included. I was expecting weakness ahead of the weekend, but as we’ve seen so many times in recent years, investors were eager to buy any pullback. The question I have is whether Friday will be a one day event, or will markets follow through?
There are a few things going on that concern me at the moment. First, the Magnificent Seven group of stocks that largely drove the overall market have been weak. Since the middle of December, that group is down nearly 14% collectively. Tesla is down 30% in the period. Microsoft is down 13%. Shares of Nvidia alone were down nearly 7% last week despite strong earnings and a solid outlook. Meta Platforms has seen its stock drop 9% over the past two weeks. Amazon is down over 10% since the beginning of February. Alphabet is also down 18% since the start of last month. The best performing stock is Netflix which is off its recent highs by just under 8%.
It’s not necessarily a bad thing to see market leadership get handed off to a new group of stocks. But I’m not convinced that is what we’re seeing. I think what’s more likely is traders and investors alike are unsure about trade policies and have moved out of the tech sector. I say that based on what we’re seeing in consumer staple stocks which have rallied almost 12% since mid-January. Consumer staples often pay a dividend and in times of uncertainty, investors often turn to dividend-paying “safe havens.” That could also explain what we’ve seen in the bond market of late where rates have come down substantially. I think a fair question to ask is whether the drop in rates is a flight to safety or if it’s a suggestion markets aren’t worried about tariffs sparking inflation.
Turning to earnings, we have a few big-name retail stocks reporting this week. Tomorrow, Best Buy and Target both report before the open and Nordstrom reports after the close. Then on Thursday, Macy’s will report before the open and Costco is scheduled to report after the close. So far, through last week, earnings growth has been very strong. According to FactSet, between the companies that already reported and estimates for those that haven’t yet, earnings are expected to be up 18.2% year-over-year. That puts the 12-month forward looking P/E multiple at 21.2, which is still well above historical averages.
This will also be a big week for economic data with the biggest report, the jobs number for February, due out Friday. In the meantime, tomorrow is when tariffs are expected to go into effect against Canada, Mexico and China. Initially, President Trump said the tariffs on Canada and Mexico would be 25%, with a reduced rate of 10% on Canadian exports of energy. The tariffs on China will be a 10% addition to already existing tariffs. However, there is some chatter that the actual tariff rates could change. This is something I suspect we will hear more about tomorrow night when President Trump addresses Congress.
The other big story this morning is crypto. Over the weekend, President Trump suggested the need for a crypto strategic reserve. That news sent crypto assets significantly higher over the weekend. Bitcoin, which had traded as low at $79 thousand, is back up over $93 thousand this morning. Ethereum also rallied on the news, jumping from just under $2,000 to $2400.
For today, I’m looking to see if markets follow through on Friday’s action or if that was a temporary reprieve during an otherwise challenging week. I’m also listening for specifics from China, who has threatened retaliatory tariffs. As always, I would stick with your investing plan and long-term objectives.
tastytrade, Inc. commentary for educational purposes only. This content is not, nor is intended to be, trading or investment advice or a recommendation that any investment product or strategy is suitable for any person.
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