Weekly Trader's Outlook

If you read last week's blog you might recall that my primary forecast for this week was "Volatile" with a secondary outlook of "Bullish." While we certainly saw an uptick in volatility this week, the S&P 500 is on track to be down over 3% on the week, so my forecast turned out to be wrong. Last week I noted that the Nasdaq Composite had dropped down to its 200-day SMA, coupled with a sub-30 reading on the Relative Strength Indicator (RSI), which is a condition that looked similar to last August's "Yen carry trade" low. However, stocks continued to experience selling pressure this week, driven by continued tariff headlines and global growth concerns. U.S. President DonaldTrump moved forward with the implementation of 25% tariffs on both Canda and Mexico on Tuesday, but later in the week agreed to exempt any USMCA-compliant goods from the tariff hike. A couple of weeks ago I highlighted the growing list of incremental datapoints that were pointing to slower economic growth and while this morning's Nonfarm Payrolls report was greeted with a sigh of relief, yesterday's Challenger report showed the most job cuts since the throes of the pandemic (more on this in the "Economic Data, Rates & the Fed" section below). So, a potential growth slowdown is still top of mind for investors and the data will continue to be under higher scrutiny, especially given the (still) elevated valuation levels in stocks.

At the time of this writing (2:05 p.m. ET), all the major indices are in the green and near the highs of the day (DJI + 232, SPX + 27, COMP + 85, RUT + 10), which appears to be technical in nature in my view. Yes, Federal Reserve Chair Jerome Powell delivered a relatively sanguine speech about the U.S. economy earlier this afternoon, but I feel that traders might have used that as an excuse to buy stocks given the oversold nature of the market. Also worth noting is that today's midday bullish reversal has moved the S&P 500 back above its 200-day Simple Moving Average (SMA) which could help stabilize investor confidence near-term. While I don't think we are done with volatility for the month of March, today's price action appears to be an encouraging development, if only from a near-term trading perspective. We've got several potential market-moving catalysts to keep on the radar over the next couple of weeks–the monthly inflation reports (CPI/PPI) come out next week, we've got a "government shutdown" deadline next Friday (March 14th) and Nvidia's GTC developer conference takes place the following week (March 17-21). Therefore, traders will need to stay nimble in this higher volatility environment, but I believe the near-term setup is relatively bullish given the numerous oversold boxes I checked off this week – SPX dropping to longer-term support at the 200-day SMA, sub-30 RSI readings on the NDX/RUT, and a 25+ reading on Cboe's Volatility Index (VIX). As a result, I'm assuming today's bullish reversal will continue near-term and my forecast for next week is "Bullish." What could challenge my outlook? If next week's inflation reports come in hot or the U.S. government is unable to come to terms on the funding gap by next Friday then stocks could run into another wave of selling pressure.

Other Potential Market-Moving Catalysts:

Economic:

• Monday (3/10): no reports
• Tuesday (3/11): no reports
• Wednesday (3/12): Consumer Price Index (CPI), Core CPI, EIA Crude Oil Inventories, MBA Mortgage Applications Index, Treasury Budget
• Thursday (3/13): Producer Price Index (PPI), Continuing Claims, EIA Natural Gas Inventories, Initial Claims
• Friday (3/14): University of Michigan Consumer Sentiment - Preliminary

Earnings:

• Monday (3/10): Franco-Nevada Corp. (FNV), BioNTech SE (BNTX), Oracle Corp. (ORCL), Vail Resorts (MTN), Asana Inc. (ASAN)
• Tuesday (3/11): Ferguson Enterprises Inc. (FERG), Viking Holdings Ltd. (VIK), Dick's Sporting Goods (DKS), Ciena Corp. (CIEN), Kohl's Corp. (KSS), Casey's General Stores Inc. (CASY)
• Wednesday (3/12): ABM Industries Inc. (ABM), Adobe Inc. (ADBE), Crown Castel Inc. (CCI), UiPath Inc. (PATH), SentinelOne Inc. (S), American Eagle Outfitters Inc. (AEO)
• Thursday (3/13): Dollar General Corp. (DG), Wheaton Precious Metals Corp. (WPM), DocuSign Inc. (DOCU), Ulta Beauty Inc. (ULTA), Rubrik Inc. (RBRK)
• Friday (3/14): Li Auto Inc. (LI), Gogo Inc. (GOGO)

Markets received a heavy dose of economic data this week, which included the all-important monthly jobs report. While this morning's Nonfarm Payrolls headline print of +151K might have provided a bit of relief for the bulls initially, it seems the report is being met with skepticism as stocks are lower across the board at the time of this writing. Yesterday's Challenger report showed the largest number of job cuts since July of 2020, so employment reports will continue to be monitored for any signs of weakness. On a positive note, this week's Initial Claims came in below estimates (221K) following last week's jump (242K). Additionally, this week's services reports from ISM and S&P came in above estimates following last month's slip into contractionary territory. Here's the breakdown from this week's reports:

• Nonfarm Payrolls: U.S. nonfarm-payrolls increased 151K in February, which was roughly in line with various estimates of +150-170K.
• Unemployment Rate: Ticked up to 4.1% from 4.0% in the prior month and above the 4.0% economists had expected. Perhaps more notable was the underemployment rate which rose to the highest level since late 2021 (+0.5% to 8.0%).
• Average Hourly Earnings: Increased 0.3%, as expected, bring the year-over-year gain to +4.0%.
• Average Workweek: 34.1 vs. 34.2 expected.
• Labor Force Participation: Ticked down to 62.4%, representing the lowest level since early 2023.
• U.S. Challenger Job Cuts: U.S employers announced 172.017K job cuts in February which represents the highest figure since July 2020.
• ADP Employment Change: +77K vs. +130K expected.
• ISM Services: Rose to 53.5 in February from 52.8 in the prior month and above the 52.6 expected. Within the report, the Prices Paid Index rose to 62.6 from 60.4.
• S&P Global U.S. Services PMI: Came in at 51.0, which was above the 49.7 expected, but is at the lowest level since November of 2023.
• Productivity – Revised: Nonfarm productivity, which measures hourly output per worker, was revised up to 1.5% from a prior estimate of +1.2%.
• Mortgage Applications: +20.4% vs. -1.2% prior.
• Initial Jobless Claims: Dropped to 221K from 242K in the prior week, and below the 244K expected. Continuing Claims increased 42K from last week to 1.897M.
• The Atlanta Fed's GDPNow "nowcast" for Q1 GDP was revised up to -2.4% yesterday from -2.8% on March 3rd.

Treasury yields were volatile this week, driven by U.S. economic data and geopolitical uncertainty, and are on track to end slightly lower on the week. Compared to last Friday, 2-year Treasury yields are down ~8 basis points to the current 3.913% from 3.987% while 10-year yields are essentially unchanged, currently 4.236% versus 4.231%.

Expectations around potential rate cuts from the Fed continue to see an uptick as concerns around economic growth increase. Per Bloomberg, while the probability around a March rate remains at just 7%, the first theoretical 100% chance of a 25-basis-point rate cut has moved up to the June Federal Open Market Committee meeting from July last week. Markets are currently expecting three 25-basis-point cuts in 2025.

The sell-off in the SPX continued this week and the index is currently trading below its 200-day Simple Moving Average (SMA) for the first time since October of 2023. If you recall, October of 2023 represented a significant near-term bottom for the index. I won't have the luxury of seeing whether the SPX will close above or below its 200-day SMA today (12:57 p.m. ET at the time of this writing), but I'll point out that the SPX closed a total of eight days below this indicator back in October of 2023 before moving back above it. Therefore, a close or two below this moving indicator, should it occur, wouldn't necessarily be a technical death knell for this index. Also worth noting is the Relative Strength Index, which dipped below the oversold level of 30 on Tuesday, though the price action has been subsequently tentative due to heightened market uncertainty. It's probably too early to say that an oversold bounce is imminent, but in my view it feels that we are close enough to a snap-back bounce that there's a good chance we'll be higher in the SPX by next Friday.

Near-term technical translation: bullish

Over the past two weeks the Russell 2000 index (RUT) has continued to fall after slicing through its 200-day SMA back on February 21st. The seemingly unabated selling pressure has sent the index to the lowest levels since last August's lows when markets sold off on the unwind of the "Yen carry trade." However, from a near-term trading perspective, the selling pressure may have gotten so extreme that a near-term mean reversion bounce may be developing. Earlier this morning the Relative Strength Index hit 25, a level the RUT has not seen since the pandemic lows back in March of 2020. While a sub-30 RSI reading doesn't guarantee a tradable bounce-back rally, it suggests that one could be approaching.

Near-term technical translation: bullish
Intermediate-term technical translation: bearish

Last night President Trump signed an executive order to establish a strategic Bitcoin reserve and a separate U.S. stockpile of other digital assets. However, "White House A.I. & Crypto Czar" David Sacks said that the "Strategic Bitcoin Reserve" will be seeded with Bitcoin already owned by the U.S. government, seized as part of criminal or civil asset forfeiture proceedings. While the order kept open the possibility of the government buying fresh Bitcoin in the future, the news may have been a bit of a disappointment to the crypto community. Bitcoin prices are down ~2% to $88,477.24 over the past 24 hours despite the announcement.

The Bloomberg chart below shows the current percentage of members within the S&P 500 (SPX), Nasdaq Composite (CCMP) & Russell 2000 (RTY) that are trading above their respective 200-day Simple Moving Averages (SMA). Stocks are on track for weekly losses and market breadth followed the indices lower. Also notable, market breadth (as measured by the 200-day SMA threshold) on these three indices are at 52-week lows. On a week-over-week basis, the SPX (white line) breadth dropped to 49.50% from 57.80%, the CCMP (blue line) moved down to a six-month low of 34.32% versus 39.07%, and the the RTY (red line) sank to 34.74% from 41.91%.

Market breadth attempts to capture individual stock participation within an overall index, which can help convey underlying strength or weakness of a move or trend. Typically, broader participation suggests healthy investor sentiment and supportive technicals. There are many data points to help convey market breadth, such as advancing vs. declining issues, percentage of stocks within an index that are above or below a longer-term moving average or new highs vs. new lows.

This Week's Notable 52-week Highs (32 today): Deutsche Bank AG (DB - $0.06 to $23.94), Elbit Systems Ltd. (ESLT + $0.05 to $353.81), Gorilla Technology Group Inc. (GRRR - $4.71 to $29.20), Palomar Holdings Inc. (PLMR - $0.13 to $125.21), Sea Ltd. (SE - $3.50 to $135.65), Seneca Foods Corp. (SENEA + $1.02 to $87.91)

This Week's Notable 52-week Lows (86 today): Advanced Micro Devices Inc. (AMD + $0.11 to $98.96), Abercrombie & Fitch Co. (ANF + $0.70 to $84.28), ConocoPhillips Inc. (COP + $2.30 to $90.90), Polaris Inc. (PII + $1.52 to $46.49), Thor Industries Inc. (THO + $1.17 to $87.60), Wayfair Inc. (W + $1.95 to $35.05)