Trump says Iran war "close to over" amid hopes for more negotiations
Stocks are selling off broadly this morning, once again being led by tech. The tech sector is now down 4% YTD. The Magnificent 7 is down 2.9% today, down 5.5% YTD. The S&P is down 0.9% YTD, while the even-weighted S&P is up 3.6%. The AI theme remains robust as far as spending, punctuated by Alphabet’s 50% boost in capex spending beyond the prior forecast, but the bullishness of the suppliers has taken a sharp setback. Semiconductors were up almost 16% YTD in late January and are now up only 6.7%. Things are moving fast. There’s no doubt that AI will be making major inroads, but at the moment, the unpredictability of how fast it will actually ramp into profits is clearly bringing near-term volatility.
One area where AI is showing up, perhaps faster than expected, is in job reductions. Challenger job cuts for January came in at 108.4K, up 118% y-o-y. Initial jobless claims were expected to rise modestly, from 209K to 212K, but came in at 231K. The 4-week average in jobless claims jumped from 206K to 212K. The JOLTS job openings for December were forecast to rise from 6.9M to 7.2M and came in at 6.5M. While the economy is still growing strongly, jobs are not.
The equity correction is finally showing up in lower interest rates. The US 2-year is down over 7bps to 3.48%, the 10-year is down over 6bps to 4.21%. Odds for a Fed cut in March have jumped from 11% to 23%. For a cut in June, the first meeting with Warsh, has gapped up to 48%. The labor situation is looking to get the Fed to finally move.
There is also volatility today in precious metals, where gold is down $103, to $4,850, down 10% in a week. Silver is down 12% today to S74.2/oz, down 34.6% in a week. Copper has fallen to $5.77/oz, now down 7% in a week. Crude oil is down 3% to $63/bbl, but still up 8% in a month. Natural gas is down 3.2%, gasoline down 2.4%.
Crypto is in full meltdown, with Bitcoin down 8.5% today to $67.4K, down 21% in a week, down 50% off the high just last October, now all the way back to the level last seen in Oct’24. Legislation appears gridlocked and investors are bailing out.
On the earnings front, Alphabet (GOOG) reported strong beats top and bottom and very strong cash flow, but also raised their AI spending forecast to $175B -$185B, far beyond expectations. Concerns about the timing of return on investment for such a high level of spending have sent the stock lower. The shares are down 3.5% (+2.5% YTD, +66.5% LTM). Qualcomm (QCOM) had solid beats top and bottom but guided down due to memory chip shortage. The shares are down 8.1% today, down 20% YTD, down 22.2 LTM. The unrestrained AI spending by Mega Techs is creating dislocations in tech and is hurting the high valuations in the short term.
As the trading day unfolds, the major indexes are off the lows, where we saw the S&P drop as low as 6,780. The 3-day drawdown in the NASDAQ is the worst since last April. The VIX hit a high of 23.1 and has pulled back to 21.1.
While this volatility is distressing, as are trends in jobs, earnings remain strong and spending is robust. It appears to be a buying opportunity, though it’s difficult to say when the volatility will ease.
