Markets fell after weak sentiment data—here’s what’s next for stocks.
Thanks to a very disappointing University of Michigan consumer sentiment report last Friday, the markets ended the week on a sour note.
To review, the report showed a reading of 64.7, down from 71.7 in January – a 10% decline. The stock market sold off sharply in response, with the S&P 500 and Dow falling 1.7% and the NASDAQ sinking 2.2%.
So, in Sunday’s Market Buzz YouTube video, my friend and colleague Jason Bodner joins me to discuss the numbers and this week’s key economic reports. But first, we begin by previewing a few stocks’ upcoming earnings – including NVIDIA Corporation (NVDA), which will serve as the grand finale for earnings season. We take a closer look at the factors behind Palantir Technologies, Inc. (PLTR) 19% plunge and review Walmart, Inc.’s (WMT) cautious earnings guidance.
Plus, we share our thoughts on President Trump’s bold words on Ukraine and how they could impact peace talks with Russia, as well as the German election and what the outcome could mean for the global economic reports.
You can click the play button below to watch now!
After you’ve watched the video, make sure to subscribe to my channel! Once you do, you’ll be able to click a small bell that will notify you once our videos become live.
To learn more about Jason and his Quantum Edge system, click here. His system has beat the S&P 500 7-to-1 over the last 30 years in independent testing and backtesting. I’m such a big fan of Jason that I included a few of his stories in my new book, The Sacred Truths of Investing.
And for my latest take on the stock market and big headlines, join me at Growth Investor. I released a Special Market Podcast this afternoon that covered today’s broader market pullback, the results of the German election and more.
Once you sign up, you’ll have full access to all my Special Market Podcasts, Weekly Updates and Monthly issues, as well as exclusive Growth Investor Buy Lists special reports (including three brand-new ones I published last week).
P.S. My friend Keith Kaplan recently called a “mission critical” meeting over at TradeSmith. Why? It all has to do with an ultra-rare pattern has emerged in the markets that has only appeared three times going back 125 years…
As CEO of TradeSmith, he’s pounding the table to get everyone to pay attention. Because one of their time-tested algorithms just flashed “green” on 10 off-the-radar tech stocks that could deliver generational wealth. So, on Thursday, February 27th, he’s holding a special briefing – and you’ll be blown away by what he reveals. Click here to grab your seat for Thursday’s big event.
The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:
NVIDIA Corporation (NVDA), Palantir Technologies, Inc. (PLTR) and Walmart, Inc. (WMT)
While insisting he is not eager to take the firm public, Marc Andreessen, co-founder of a16z (Andreessen Horowitz), has said he aims to build it into an enduring company.
On the Invest Like the Best podcast, Andreessen condemned the traditional venture capital partnership model, which he sees as flawed as it relies on a small group of founding father’s expertise and holds little lasting value once they retire.
To transition a16z from a traditional VC partnership model to a more structured, scalable business would involve adopting practices seen in long-lasting financial institutions, such as, J.P. Morgan and Blackstone—focusing on structured management, scalability, and long-term sustainability.
The goal, he explains, is to ensure a16z continues to operate and support founders across multiple generations—moving beyond the limitations of the traditional VC model, which relies heavily on individual partners. By doing this, Andreessen believes a16z would maintain its position as a leading investor and avoid the interpersonal conflicts that often plague partnerships.
Criticisms of the VC partnership model include: unrealistic growth expectations placed on startups, potential for misaligned incentives between founders and investors, a focus on short-term profits over long-term sustainability, pressure to make quick decisions that might not be in the best interest of the company, and the loss of control for founders due to giving up equity to investors; essentially, the model can incentivize rapid growth at the expense of a company’s long-term health and founder autonomy.
In 2019, Vinod Khosl, founding CEO of Sun Microsystems and founder of Khosla Ventures, told Sam Altman: “90% of VCs do not bring any value to startups, and 70% even harm them.” If they continue to chase the next billion-dollar unicorn, they miss opportunities to invest in more sustainable businesses, Khosla explained. By shifting focus from short-term gains and quick exits to long-term company building and sustainable growth for portfolio companies, VCs can support startups in achieving steady, manageable growth that aligns with their long-term vision. They can also broaden their investment criteria to include startups with various business models, not just those with the potential for explosive growth.
By shifting focus from short-term gains and quick exits to long-term company building and sustainable growth for portfolio companies, VCs can support startups in achieving steady, manageable growth that aligns with their long-term vision. They can also broaden their investment criteria to include startups with various business models, not just those with the potential for explosive growth.
Brokerage and robo-advisor products: Money market funds and cash management accounts
U.S. Treasury products: T-bills, notes, and bonds, in addition to I bonds
You can choose just one of these, or mix and match different products for different buckets of funds. In any case, you’ll want to understand what each product pays. We’ve laid out today’s top rates in every category and indicated the changes from a week ago.
Need more information to understand the pros and cons of these different savings vehicles? Below the tables, we describe each one and provide links to more detailed information.
Today’s Best Rates on Cash
Though many 4%-plus options are available right now, the highest return you can earn on your cash today is 5.00%, available as an 18-month certificate of deposit (CD) from Mountain America Credit Union. Though CDs require you to lock in your funds (generally charging an early withdrawal penalty if you cash out before maturity), the upside of the commitment is that your advertised rate is also locked in for the full term. So if you were to open Mountain America’s CD next week, your 5.00% APY would be guaranteed until September 2026.
If you don’t feel comfortable committing your funds, or prefer a different timeline for your savings, returns in the 4% range are still excellent, and you can earn that from a number of choices in the tables below.
Note that the “top rates” quoted for savings accounts, money market accounts, and CDs are the highest nationally available rates Investopedia has identified in its daily rate research of hundreds of banks and credit unions. This is very different from the national average, comprising all institutions offering a CD with that term—including many large banks that pay a pittance in interest. Thus, national averages are always low, while the top rates we present are often 5, 10, or even 15 times higher.
Understanding Your Different Cash Options
Bank and Credit Union Products
Savings Accounts
The most basic option is a bank or credit union savings account—sometimes called a high-yield savings account—which lets you add and withdraw money as you please. But don’t assume your primary bank pays a competitive rate. Some banks pay virtually zero interest.
Fortunately, we make shopping for a high rate easy. Our daily ranking of the best high-yield savings accounts gives you 16 options paying 4.35% to 4.75% APY. Note, however, that savings account rates can change at any time.
Money Market Accounts
A money market account is a savings account that adds the ability to write paper checks. If this is a useful feature to you, shop our list of the best money market accounts.
If you don’t need paper check-writing, choose whichever account type—money market or savings—pays the better rate. The top money market account rate is currently 4.50% APY. Again, be aware that money market rates are variable, so they can be lowered without warning.
Certificates of Deposit
A certificate of deposit (CD) is a bank or credit union product with a fixed interest rate that promises a guaranteed return for a set period of time. Generally ranging from 3 months to 5 years, CDs offer a predictable return with a rate that cannot be changed for the duration of the term.
But beware that it’s a commitment with teeth: If you cash in before maturity, your earnings will be dinged with an early withdrawal penalty. Our daily ranking of the best nationwide CDs currently includes options paying up to 5.00% APY.
Brokerage and Robo-Advisor Products
Money Market Funds
Unlike a money market account at a bank, money market funds are mutual funds invested in cash and offered by brokerage and robo-advisor firms. Their yields can fluctuate daily but currently range from 4.00% to 4.25% at the three biggest brokerages.
Cash Management Accounts
For uninvested cash held at a brokerage or robo-advisor, you can have the funds “swept” into a cash management account where it will earn a return. Unlike money market funds, cash management accounts offer a specific interest rate that the brokerage or robo-advisor can adjust whenever it likes. Currently, several popular brokers are paying 3.83% to 4.00% APY on their cash accounts.
U.S. Treasury Products
Treasury Bills, Notes, and Bonds
The U.S. Treasury offers a wide array of short- and long-term bond instruments. Those with the shortest duration are Treasury bills, which range from 4 weeks to 52 weeks, while Treasury notes have a maturity of 2 to 5 years. The longest-term option is a Treasury bond, which has a 20- to 30-year maturity. Today’s rates on the various Treasury products range from 3.99% to 4.55%.
You can buy T-bills, notes, and bonds directly from TreasuryDirect or buy and sell them on the secondary market at brokerages and banks. Selling a Treasury product allows you to exit before the bond matures. However, you may pay a fee or commission for secondary market purchases and sales, while buying and redeeming at TreasuryDirect has no fees.
You can also buy Treasury ETFs, which trade on the market like a stock. Treasury ETFs have advantages and limitations, which you can read about here.
I Bonds
U.S. Treasury I bonds have a rate that’s adjusted every six months to align with inflation trends. You can redeem an I bond anytime after one year or hold it for as long as 30 years. Every six months you own the bond, your rate will change.
How We Find the Best Savings and CD Rates
Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs and savings accounts to customers nationwide and determines daily rankings of the top-paying accounts. To qualify for our lists, the institution must be federally insured (FDIC for banks, NCUA for credit unions), and the account’s minimum initial deposit must not exceed $25,000. It also cannot specify a maximum deposit amount that’s below $5,000.
Banks must be available in at least 40 states to qualify as nationally available. And while some credit unions require you to donate to a specific charity or association to become a member if you don’t meet other eligibility criteria (e.g., you don’t live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, read our full methodology.
Revisiting the LA fires … the national housing situation is a mess … are these conditions bullish for homebuilding stocks? … what TradeSmith’s quant tool tells us
On Tuesday, January 7, I stepped outside my apartment in Venice Beach, Calif., and noticed smoke coming from the Santa Monica mountains.
I texted a friend who lives in Santa Monica, closer to the smoke. She snapped this photo from her roof.
We were watching the early hours of the “Palisades Fire.”
Along with the Eaton Fire and additional area blazes, the flames would go on to destroy more than 11,500 homes across 60 square miles. The total real estate losses are expected to top $30 billion.
The housing situation in Los Angeles: from “bad” to “worse”
Prior to the fires, the more popular Los Angeles neighborhoods already suffered a massive shortage of homes/apartments relative to the people who wanted to live there.
And as Econ 101 teaches us, when “too much demand” runs into “too little supply,” the result is sky high prices.
Now, throw in an overnight loss of 11,500 homes.
Though price gouging is prohibited by state and local laws, it’s happening. It’s the byproduct of landlords who are being bombarded with rental requests, and deep-pocketed prospective renters who are willing to pay substantially above-market rent (the people who lived in the Palisades neighborhood were generally affluent, with the average home price coming in just under $4M).
Here’s The Los Angeles Times:
People are desperate, local agents said.
Their homes are in ashes, and they’re looking for stability — somewhere for their family to go that’s not a shelter, a friend’s house or a hotel room.
Some landlords are now sharply raising rent, even beyond what temporary price gouging protections allow.
And some would-be renters are offering a year’s rent upfront in cash and engaging in bidding wars.
This won’t end well…or soon.
The same dynamic is playing out nationally but for different reasons
The root issue remains a supply/demand imbalance. But this time, it wasn’t a fire burning up housing supply, but rather an inflationary fire burning up the purchasing power of homebuyers’ dollars, driving home prices higher.
Below we look at Federal Reserve data showing us the average price of houses sold in the U.S. dating to 1960. I’ve circled the pandemic-related vertical price explosion.
Source: Federal Reserve data
Coupled with a 30-year mortgage rate hovering near 7%, and you get today’s frozen housing market.
Last Friday, we received the latest data on the problem.
From CNBC:
The U.S. housing market continues to weaken, as potential buyers face stubbornly high mortgage rates, high prices and limited supply of listings.
Sales of previously-owned homes fell 4.9% in January from the prior month to 4.08 million units on a seasonally-adjusted, annualized basis, according to the National Association of Realtors. Analysts were expecting a 2.6% decline.
Sales…are still running at a roughly 15-year low.
Now, this would seem to be great news for homebuilding stocks. And, until recently, it has been…
Long-time Digest readers know that we got into an unofficial homebuilding stocks trade in 2022
In our April 20, 2022, Digest, we suggested that aggressive investors could initiate a trade on the iShares Home Construction ETF, ITB. It holds homebuilding heavyweights including DR Horton, Lennar, NVR, Pulte, and Toll Brothers.
Between that date and ITB’s high in October, the trade climbed 119%, quadrupling the S&P.
Source: TradingView
But since then, ITB has fallen about 25%.
Regular Digest readers know that I’m a big believer in using stop-losses to protect gains. So, is it time to sell?
If your knee-jerk answer is “yes,” what about our nation’s housing situation?
Aren’t today’s macro dynamics incredibly bullish for homebuilders? And if so, wouldn’t ITB trading 25% lower be a fantastic buying opportunity?
The complexity of buying homebuilders today
Homebuilder companies face a complicated market environment.
Yes, sky-high prices of existing homes would appear to be fantastic for new home construction demand.
The logic would seem to suggest that builders should just flood the market with new home construction to meet the overwhelming demand. Builders can undercut sky-high market prices and rake in the profits.
It’s not that easy.
Remember, lumber, concrete, and other key materials surged in price during the pandemic and remain elevated, though some have come down from their peaks. That’s bad for margins.
Meanwhile, skilled construction labor shortages mean wages have increased, pressuring margins further.
And don’t forget that acquiring and developing land is more expensive today because of higher interest rates increasing the cost of financing land purchases. Once again, tough on the bottom line.
Altogether, homebuilders can’t undercut prevailing market prices too much if they want to protect their profit margins. So, this market isn’t quite the moneymaker we might assume for builders.
(And we haven’t even talked about how these builders can’t do anything about the near-7% mortgage rates that are having a massive impact on housing unaffordability.)
But still – what if the Fed lowers interest rates later this year? What about aging Boomers having to downsize, being forced to sell their homes which will take pressure off the supply/demand imbalance?
Do those influences not make this ITB selloff a buying opportunity?
We could speculate…or we could let historical market data from TradeSmith guide our decision.
Taking the guesswork out of investing
For newer Digest readers, TradeSmith is our corporate partner.
They’re an investment research company rooted in quantitative analysis. They also happen to be in constant state of R&D (research and development) to make their products better.
They’ve spent over $19 million and over 11,000 man-hours developing their market analysis algorithms with dozens of staff working solely on developing and maintaining their software and data systems.
One of these software/data systems relates to market entry/exit timing.
As we noted in the Digest last week, TradeSmith’s CEO Keith Kaplan is holding a live event this Thursday that provides a walk-through of how it works.
Let’s use it on ITB today.
But before we dive into those details, let’s begin theoretically…
ITB is down about 25% from its high. Broadly speaking, is this a good time to sell…or double-down?
Here’s Keith, not speaking specifically about ITB, but about the decision at large:
[Investors are] “risk-seeking when we’re losing.”
And I bet you’ve had this happen plenty of times. I call it “rationalizing your decision after you make it.” When a stock is falling, you say to yourself:
I’m going to buy this on the dip.
This stock will come back, and my break-even price will be lower.
It’s just a paper loss.
Really, what you’re doing is adding more risk to your position. You are “seeking out more risk” by buying more OR holding on to a falling stock.
Keith explains that momentum is the single most important factor in investing.
When a stock has a confirmed uptrend, it is more likely to rise in the short term. When a stock has a confirmed downtrend, it is more likely to fall in the short term.
Now, this sounds simple…
Buy when a stock is rising and sell when it’s falling! Easy!
But as you know, in the real world, there’s a big problem for investors…
How do you know whether a stock that’s pulling back is in a “confirmed downtrend,” or just briefly regrouping before it makes a new run higher?
TradeSmith has an answer.
Understand a stock’s “VQ”
Volatility is not the same thing as risk, and volatility isn’t uniform across all stocks.
Below, we compare two stocks: perennial blue-chip Coca-Cola (KO) and Matador Resources (MTDR), an oil and gas exploration company.
From October of 2021 through mid-April of 2022, both stocks climbed about 17% But the paths they took to get there were wildly different.
See for yourself. Matador is in red. Coke is in blue.
Source: TradingView
Coke’s path is far smoother than Matador’s comparatively “violent” series of ups and downs.
Given this, using the same trailing stop-loss percentage for both stocks would ignore the reality that Matador’s normal volatility is far greater than that of Coke’s.
But that doesn’t mean Matador is a “riskier” stock. It just means traders need to factor this greater volatility into their position sizing, trade expectations, and stop-loss levels.
TradeSmith has created a tool that factors in these unique volatility thumbprints, generating a proprietary “Volatility Quotient” (VQ) reading that helps investors know how much volatility is normal and to be expected.
Here’s more from Keith:
[The VQ number] solves so many problems that individual investors face today. Certainly, people like me, and likely you as well.
It’s a measure of historical and recent volatility – or risk – in a stock, fund, or crypto. And that measurement is really focused on the moves a stock, fund, or crypto makes.
Here’s what it tells you (I’ll just refer to stocks, but it covers everything we track):
When to buy a stock.
How much of a stock to buy.
When to sell a stock.
And how risky that stock is – how much movement you should expect.
Let’s use ITB’s VQ to get a sense for where the ETF is today
Below is how ITB looked as of last Friday on one of TradeSmith’s data pages…
I’ll walk you through some of the details in a moment. But here’s the page first.
Source: TradeSmith
The red “H” is ITB’s high from back in October. This is the price to which we apply ITB’s VQ reading.
In this case, given that high and ITB’s proprietary VQ, the stock’s unique stop-loss level came in at $98.95, which was about 23% lower.
Now, notice the green band at the bottom.
This extended until about mid-December. It was showing us that during this period, ITB was still performing well and reasonably safe to hold.
But as ITB’s price began to slip, green turned to yellow on December 18. This didn’t mean “sell,” but it did signify “caution.” ITB’s upward trend was losing steam.
Fast-forward to last Friday when ITB closed at $98.11…below its stop-loss level of $98.95. Here in the Digest, this means we’re closing our unofficial trade for a gain of 69%.
But what about all the macroeconomics at play that could be bullish for ITB as 2025 rolls on?
That’s possible. ITB may begin soaring tomorrow. No one has a crystal ball.
But what we know, based on the data, is that ITB appears weak today…which suggests further weakness tomorrow.
Back to Keith:
The trend is your friend.
If the confirmed trend is up, stay in your stock. Ride the winner! If the trend is a confirmed downtrend, cut your losses.
The good news for anyone who wants to continue playing the housing market is that Keith’s market timing tool works the other way too.
If/when conditions change and ITB begins a new, sustained uptrend, TradeSmith’s timing tool will notify us (you can set that alert). We can evaluate the trade’s overall attractiveness at that point and perhaps re-buy.
Sure, I could take a guess at how inflation, interest rates, and housing demand will play out from here, and trade ITB based on my analysis – but far smarter analysts than me get such calls wrong all the time.
I believe my portfolio results would be better served if I based my market choices on historical data rather than my own hunches.
If you feel similarly, Keith is doing a run-through of this quant tool with far more details this Thursday at 8:00 PM ET
During the event, Keith will introduce a new tech breakthrough and demo it for the first time ever. It’s called the MQ algorithm. And it’s designed to do one thing: detect and model market melt-ups mathematically.
His team crunched 5.2 billion data points to create this breakthrough. They examined more than 125 years of stock market data for the S&P 500, Nasdaq and Dow. And they ran months’ worth of back-testing to come up with this breakthrough.
Online shopping giant Amazon generated $187.8 billion in fourth-quarter revenues, while Walmart, a traditional retailer, lagged behind for the first time ever, with $180.5 billion. Walmart is still expected to lead in annual revenue next fiscal year, with sales projected at $708.7 billion, versus Amazon’s $700.8 billion.
While promising in absolute terms, Walmart’s outlook is actually quite cautious and left markets nervous. Given that Walmart is a bellwether for US consumer spending, its tepid forecast could signal a bumpy road ahead for the retail sector.
The multinational retailer’s CFO John Rainey confirmed that Walmart, considering its numerous imports from Mexico and China, won’t be “completely immune” to the new tariffs announced by President Trump.
For its part, Amazon’s future looks bright. The e-commerce conglomerate is on track to dethrone Walmart’ decades-long supremacy over the long term thanks to its ability to diversify. In addition to its core business, Amazon also incorporates its high-margin cloud storage service AWS, its advertising arm, and its Whole Foods grocery division, while Walmart, the largest brick-and-mortar retail conglomerate in the US with 10,500 stores, is expanding into e-commerce.
“Given the growth trajectories of the two companies, it has always been in the cards that Amazon would overtake Walmart’s revenue at some point,” says Neil Saunders, Managing Director of GlobalData Retail. “However, while Amazon is a powerhouse in retail, it is a diversified group that draws its sales from a wide variety of areas. By contrast, most of Walmart’s sales still come from retail.”
The two heavyweights have been competing for years. In less than a decade, Amazon reached a market capitalization three times that of Walmart, with $59 billion in profits last year, compared to its rival with $19.4 billion.
As the battle for retail dominance continues, shoppers could benefit from the competition between the two giants. “The retail market is very democratic and healthy,” added Saunders. “And big companies duking it out is ultimately very good for customers.”
Nvidia (NVDA) shares finished Friday higher, suggesting the stock found some support from dip-buyers after yesterday’s sell-off.
Nvidia stock ended the day up nearly 4% in recent trading after tumbling 8.5% yesterday. Nvidia on Wednesday reported better-than-expected quarterly results, but Wall Street demonstrated on Thursday that’s no longer enough from its favorite AI stock. Nvidia beat revenue estimates by the smallest amount in two years, underwhelming investors who have grown accustomed to gargantuan beats from the AI chip leader.
The results failed to revive the AI rally. High-flying, richly-priced stocks like Palantir (PLTR), Applovin (APP), and Vistra (VST), which all soared last year on enthusiasm about their AI-fueled growth, had dropped in the recent sessions as investors have grown cautious amid a slew of economic and political concerns.
Even Friday morning, after a promising print of the Federal Reserve’s preferred inflation measure, all three stocks slumped at the open. (They all finished the day higher, however.)
AI stocks have also been weighed down this month by lingering concerns about the impact of Chinese start-up DeepSeek’s R1 reasoning model, which its developers say operates at a far lower cost than comparable U.S. models. R1’s success and efficiency raised concerns among investors that U.S. hyperscalers and other AI developers could scale back their spending on Nvidia’s most advanced technology.
Major tech companies have since reiterated their commitment to spending hundreds of billions on AI infrastructure in the coming years, but that hasn’t pulled Nvidia and other chip stocks out of their funk.
This article was updated to reflect closing share-price information.
PCE inflation comes in as expected … volatility is the new normal … Jeff Clark’s bullish indicator … a flashing recession warning … context for this market weakness
The good news is that today’s inflation report – the Personal Consumption Expenditures (PCE) Price Index – met market expectations.
This prevents bears from having a new reason to push stock prices lower.
The bad news is that the report showed inflation remaining well above the Fed’s target of 2%.
Translation – don’t expect rate cuts soon…
Diving into the details, the PCE index climbed 0.3% in January, notching a 2.5% year-over-year rate. Core PCE, which excludes food and energy prices, also rose 0.3% for the month and came in at 2.6% annually.
All these figures were in line with consensus estimates.
The more interesting part of the report had to do with incomes and consumer spending. Here’s CNBC:
Personal income posted a much sharper increase than expected, up 0.9% on the month against expectations for a 0.4% increase.
However, the higher incomes did not translate into spending, which decreased 0.2%, versus the forecast for a 0.1% gain.
The personal savings rate also spiked higher, rising to 4.6%.
This reflects what we’re seeing in the markets today: fear stemming from uncertainty.
From interest rates, to tariffs, to inflation, to public policy – you name it – there are abundant “what will happen?” question marks overhanging stocks today.
And that means one thing…
Volatility.
Get used to stock market volatility
That’s the recommendation of our hypergrowth expert, Luke Lango, editor of Innovation Investor.
From Luke:
Stocks have swung violently higher and lower many times over the past several months.
In that time, we’ve seen just 5% gains in the S&P 500 and a negative return from the small-cap Russell 2000.
Is this intense volatility Wall Street’s ‘new normal’?
It may be.
I still think stocks are going higher in 2025. However, I don’t think it’ll be a smooth ride higher – largely because of U.S. President Donald Trump.
To be clear, it’s not Trump himself. Rather, Luke notes that it’s the uncertainty Trump brings to the market.
Wall Street hates uncertainty. Market fog makes it challenging for analysts to run their earnings projections and for money managers to position their clients.
This results in market whipsaws (quick, violent moves up and down) as Wall Street reacts to shifting headlines and new data.
But as Luke noted, this might be our new normal:
We think this will be the pattern for the stock market for the foreseeable future: two steps forward, one step back. Lather, rinse, repeat.
That means a lot of volatility on Wall Street…
Now, volatility isn’t necessarily bad.
For traders, it’s the fuel that drives profits. And for long-term investors, while frustrating, it can also present great buying opportunities.
For a detailed roadmap of how Luke plans to play this Trump-based volatility, check out the free presentation he just put together. It covers:
Luke’s five-point game plan for how Trump’s policies could shape the economic landscape
How these policy changes might influence your money over the next four years, including when the boom becomes a bust
The sectors best positioned for exponential growth under the Trump
In the meantime, keep your Dramamine nearby. This volatility looks to be sticky.
But if one of Jeff Clark’s trading indicators is right, we’re getting closer to the good “upward” kind of volatility
For newer Digest readers, Jeff is a market veteran with more than four decades of experience. In his service, Jeff Clark Trader, he profitably trades the markets regardless of direction – up, down, or sideways.
He uses a suite of momentum indicators and moving averages to provide clues about where stocks are going next. And one of them suggests we’re getting closer to a bullish breakout.
Here’s Jeff from his Wednesday update:
The Volatility Index (VIX) is about to generate its first “buy” signal of 2025.
The VIX gave us eight buy signals in 2024. All of them came within a day or two of at least a short-term low in the stock market. And all of them were good for a rally of at least 100 points in the S&P 500.
This “VIX Indicator” triggers when the index closes above its upper Bollinger Band and then closes back inside the bands.
To make sure we’re all on the same page, Bollinger Bands help gauge a stock’s volatility to determine if it’s over- or undervalued. This can inform entry and exit timing in a trade.
Back to Jeff for how to read Bollinger bands in the context of the VIX:
Whenever a chart moves outside of its Bollinger Bands, it signals an “extreme” condition – which is vulnerable to a reversal in the other direction.
In the case of the VIX, these extreme conditions trigger buy and sell signals for the broad stock market.
The last time this indicator triggered was mid-December. The S&P 500 was trading near 5880. One week after the trigger, the index was above 6000.
On Monday, the VIX closed above its upper Bollinger Band for the first time this year. Below is a chart showing how that looked, from Jeff’s update.
You’ll also see the trigger from mid-December.
Source: StockCharts.com
Jeff writes that when the VIX closes back inside the bands, we’ll have another VIX buy signal.
Below is how things look as I write Friday morning. I’m using a 6-month timeframe so we can see the details clearer. If you can’t see it, the VIX reading is slipping just underneath the upper Bollinger Band.
Source: StockCharts.com
Per Jeff, we’ll need the VIX to close today back inside the band for an official trigger. But so far, so good. And at a minimum, we can say that the VIX Indicator appears very close to turning to bullish.
We’ll report back.
Continuing with “triggers,” on the macro front, the Fed’s favorite recession indicator triggered on Wednesday
Now, I’ll immediately clarify that we’re not calling for a recession.
That said, it’s important for investors to be aware of what’s happening.
Two days ago, the 10-year Treasury yield fell below the yield on the 3-month note in what’s called an “inverted yield curve.”
Regular Digest readers are familiar with this phenomenon as we’ve covered it extensively over the years. But while we usually focus on the 10-year/2-year relationship, the Fed prefers this 10-year/3-month relationship because the 3-month is more sensitive to movements in the fed funds rate.
In fact, the New York Fed uses it to assess the probability of a recession over the ensuing 12-months. As of last month, that recession probability clocked in at 23%…
Source: Federal Reserve data
This is likely to move.
Here’s CNBC:
[The 23% recession probability] is almost certain to change as the relationship has shifted dramatically in February.
The reason the move is considered a recession indicator is the expectation that the Fed will cut short-term rates in response to an economic retreat in the future.
As we covered earlier this week in the Digest, legendary investor Louis Navellier believes the Fed will enact four quarter-point cuts this year.
If that happens, our inversion might steepen or normalize based on whether Wall Street interprets those cuts as bullish or bearish (which will affect the long end of the yield curve).
After all, cuts can either restore confidence that the Fed has things under control…or inflame anxieties that the Fed is behind the curve and reacting to bad economic data.
For now, what we can say definitively is that the inversion does not mean an impending recession. Remember, this part of the yield curve was inverted for virtually all 2023 and 2024 (turning positive in mid-December 2024). So, while it’s something we should consider, let’s not assume the sky is falling.
We’ll continue monitoring and will report back.
Finally, let’s end today with some good news
If the recent market weakness has you on edge, remember…
We’re in a bad part of the year for market returns.
Below, we look at the S&P’s Seasonality chart, which visually represents the average returns of the S&P 500 over the average year.
The short takeaway?
On average, it’s always bad right now. So, don’t rush to bail on stocks.
Source: Stock Pattern Pros/Tim @StockPatternPro on X / Charles-Henry Monchau
The good news is that if average seasonality repeats, we’re in for another week or so of softness, then we’ll kick off a solid bull run into May.
Sounds about right with Luke’s volatility prediction and Jeff’s VIX Indicator.
Speaking of seasonality, back in January we profiled a new Seasonality Tool from our corporate partner, TradeSmith. It searches for historical, repeatable price patterns, specific to any given stock.
Well, yesterday, Keith & Co. released their latest suite of quant tools, while also flagging a rare market pattern that’s suggesting we’re on the verge of a bullish melt-up – despite the market’s wobbles in recent weeks.
It was a great evening with thousands of investors joining Keith. If you missed it, you can catch a free replay here. It covers:
What’s behind the algorithm that’s flashing a bull signal today
10 stocks positioned to ride a melt-up higher
10 “big name” stocks to sell immediately
The perfect way to unleash TradeSmith’s cutting-edge technology on these markets for maximum profit potential
We’ll keep you updated on all these stories here in the Digest.
Panama was the first Latin American country to join in 2017 China’s Belt and Road Initiative (BRI). Last month, it also became the first one to leave it. Since its inception in 2013, more than 150 countries have participated in the infrastructure program aimed at increasing Chinese trade, with over 20 in Latin America. After Panama’s withdrawal, a regional domino effect cannot be ruled out.
Since taking office in January, US President Donald Trump has repeatedly accused the country of relinquishing control of the Panama Canal to China. Panamanian President José Raúl Mulino and Beijing officials deny the claims. However, following a diplomatic trip by Secretary of State Marco Rubio, Panama announced that it would renege on its agreement with China.
Tensions remain. While a 1977 treaty signed by the US transferred full authority over the waterway to Panama in 2000, Trump has not shied away from reasserting control over it.
Panama’s departure from the BRI is the first visible result of the Trump administration’s foreign policy, says Evodio Kaltenecker, associate professor of International Business and Strategy at the D’Amore-McKim School of Business of Northeastern University. “The BRI-xit, pun intended, can to be seen through different lenses. First, the geopolitical issue: Western countries have been concerned about China’s decades-long rising influence around the world. Panama and its Canal clearly signal the US plans to counter Beijing and deepen regional economic partnerships. There are no empty spaces in geopolitics. If Chinese influence decreases, Washington-led influence will regain relevance.”
Second, Kaltenecker continues, there is what he likes to call a “geoeconomic effect” that impacts international trade: “The Panama Canal is not only a key component of the U.S. freight transportation system but also a critical route of global trade. For instance, approximately 5% of global trade passes through the Panama Canal each year, highlighting the canal’s importance as a maritime pathway.”
Finally, Kaltenecker argues, there is a “signaling effect.” “Not by chance, Panama’s withdrawal came days after Rubio’s visit to Panama City,” Kaltenecker adds. “US pressure in the Panamanian case will probably set the pattern for further Washington moves.”
