NYSE MAC Desk Weekly Recap - January 20

Coming into the holiday shortened week the S&P 500 was up just over 4% following back-to-back weekly gains to start the year. There was a buzz on Tuesday as traders returned to the floor but that was mostly about the NY Giants playoff win and didn't translate into trading with equity markets ending the session around unchanged. However, Wednesday was a different story and investors had their first gut check of the year with major indices ending down around 1.5%.

That gut check occurred in interesting fashion as weak economic data initially triggered a sharp move lower in yields which in turn sent the "bad is good" algos in motion and equities began to move higher. However, there seemed to be a rethink shortly after the open as Microsoft announced it would be cutting ~11k jobs and Fed officials once again took to the airwaves delivering an unrevised hawkish message. The latter is where the key lies as the whole "bad is good" feedback loop is centered on the idea that if/when the economy slows then the Fed will take their foot off the accelerator. As officials repeatedly hammer home the message that rates will stay higher for longer this raised concerns that the Fed could magnify its initial policy mistake of not reacting fast enough to inflation by continuing to tighten into a slowing economy.

Thursday there was some downside follow through after some mixed earnings results but markets did come off the low as Fed Vice Chair Lael Brainard gave a speech that had a slightly more dovish tilt than what we've heard from some other officials recently. She acknowledged the improvement in inflation trends especially when looking at things on a 3-month annualized basis as opposed to annual changes (something we highlighted in last week's note). She also seemed to offer a different opinion than what Chair Powell has laid out recently by suggesting that if other factors beyond wages, which the Chairman has singled out recently, caused the move higher in non-housing services inflation then that could also work in reverse. She followed that conclusion up by suggesting that she is not seeing signs that we are in a wage price spiral like the 1970's. This is one of the first times where we are starting to hear the other side of the argument from a Fed official and the fact that it is coming from one of the hierarchy is notable.

Today was options expiration and the selloff over the previous two sessions took the S&P from 4k to 3,900, holding above last week's low and the 20d moving average. We are increasingly seeing these 100pt jumps in the S&P 500 as options open interest get larger and create a stronger magnetic pull.

Today equity markets got off to a decent start following earnings that had a better tone than the previous day.  Alphabet was the most recent tech company to announce widespread layoffs (12k) which along with Netflix results put the focus on the mega-cap names. The S&P 500 rallied right to the 50d earlier and held around that level before somewhat inexplicably exploding higher in the final couple hours of trade closing right back at the 200d moving average (~3,970). Fed Waller, who has been one of the more vocal hawks over the last year, did speak mid-day. I didn't see any big shifts in his commentary though you could make the case that he sounded slightly less hawkish. If you really stretch he said that if markets are correct and inflation does fall faster than he anticipates that he "would not hesitate to change policy".

At any rate, equities ripped into the close led by tech stocks/other more speculative pockets of the market. On the day the S&P 500 was up ~2% cutting the WTD losses to under 2%. The NYSE FANG+ index ended today up nearly 5%, bringing the WTD tally to 2.7%, and YTD gains to ~10%. That does pare in comparison to Bitcoin which was up 6.5% today, 12.5% WTD and >30% YTD. The Dow Industrials average was the big underperformer this week weighed down by weakness in GS/TRV after disappointing earnings announcements. The index was up ~1% but still ended the week down 2.7% and is clinging to YTD gains. Mega-cap cap growth has now outperformed value by ~6.5% YTD.

Read the rest of the weekly recap here.