From Super Bowl to Super Core: The Week Ahead In Markets
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Warm welcome to the Monday Risk Reversal Podcast. Guy Adami, always joined by Elizabeth Young-Thomas, she of SoFi, and Dan Nathan, he of the Risk Reversal Media Group, basking in the afterglow of what was an interesting Super Bowl. Dan, how are you? I'm doing great. Yeah, it was interesting from the standpoint of you could have turned it off at halftime, which is fantastic. And Elizabeth, how are you?

I am well, and I basically did turn it off at halftime. So I had a good night afterwards. Apparently the Chiefs, you know, they decided to turn it off as halftime as well, which is unfortunate, although I am not crying any tears, but we'll talk about that at another time. But

A lot happened last week, Dan, and let's start there because Friday's sell-off, you know, I thought came seemingly out of nowhere. You know, the market faded. We saw yields move back higher. Obviously, gold continues to be a story. A bit of a relief rally today.

a VIX that is still somewhat tamed, but you know, we have some economic data this week. So let's just look back first before we go forward. - Yeah, really quickly, I'd love to get Liz's take on this, 'cause I know you'd like to think about the market with, you know, themes and rotations and the like here. And one of the most interesting things I took away from the last two weeks, and you know, we always hype that week with the mega cap tech earnings, right? You get the Microsoft, the Google, the Amazon, you know, Nvidia, a couple others, Meta that I'm forgetting about.

and you know it's really interesting because we say oh if that was 10 trillion dollars in market cap all go one way right like it's going to do this to the s p oftentimes they really cancel each other out right and so when you think about microsoft amazon and google these are three of the names most closely associated at least in the public markets with this generative ai trade and all three of them sold off a lot and it wasn't just

based on their outlook going forward, it was really based on their CapEx spending and it was higher than most people expected. And that to me is the biggest change that we've seen. Microsoft was down 6% after its results. Google was down 8% after its results. Amazon was down 4%.

And so, Liz, talk to me a little bit about that, because you could see money coming out of there and going into some other areas. And that might keep things afloat, but most likely not. Right. When we have strategists like yourself come on the pod, you're like, well, energy is low, single digits. Banks are like, you know, mid to low, single digits. Like you've got to get a lot of things going right in the rest of the economy and the rest of the markets to make up for that slack.

Yeah, so I'm looking at the sector performance over one week, a one-week period in the S&P. Top sector was IT. Second best sector was real estate. Third best, financials. Now remember, those Meg7 names don't all fall into technology. The worst sector in that one-week period was communications, and the second worst sector was discretionary. So some of them do fall into those categories, and that's why you're seeing that drag. We just talk about them as tech.

I think there have been a number of competing headlines that overshadowed a lot of those big tech earnings. Obviously, we had deep seek and the idea that we might have a cheaper alternative, which is, I think, the theme of capex spending already being scrutinized

just got more scrutinized with that news. Now, obviously, we don't know what the outcome of all of that is going to be, but investors were already critical of too much capex spending. And then here we are, they got more and more critical. So I think that that was a competing headline that overshadowed perhaps even some of the good news that came out of some of those earnings reports.

And then you've got some macro data. We had jobs data on Friday, which was kind of a mixed report. The market took it reasonably positive and we pushed rate cuts back. We actually now are only at a 50-50 chance of having two cuts this year. There's only one fully priced in. But the jobs report wasn't altogether positive.

conclusive we added many fewer jobs than we expected but the unemployment rate ticked down and then this week we're coming up on cpi we have cpi coming in on wednesday and the market has shifted its focus off of jobs so much and back onto inflation and we and also inflation expectations have risen which is what the fed watches and i think that's giving the market some jitters too yeah no question and you know we'll talk about the economic data we'll get a little more granular but

what appears to me what's going on, you know, we've talked about tariffs so many times now over the last six months that I think the market's sort of gotten used to it and sort of, I don't know, I guess comfortable with the terminology. And, you know, if you see it, it's, I'd say at all times, things like diminishing marginal returns in terms of the amount of movement we're seeing and what the volatility index does, Dan. So obviously over the weekend,

We heard a lot of news about tariffs, but for whatever reason, again, the market seems to care less and less. Thoughts on that, Dan? Yeah, and I think, again, we've been talking about tariffs, and you would have thought that would have blunted some of the announcements that we were to get. There was definitely some volatility over the last couple of weeks. If you remember a week ago on Monday, we came in talking about this kind of surprise tariff

being levied on possibly Mexico and Canada. To me, I think what is the effect on uncertainty as you think about CEOs and some of the stuff that they want to do? And we just spent time talking about CapEx as it relates to these big hyperscalers. That's totally

totally different than the stuff that we're talking about, right? When you think about what the Trump trades were, right? The pro-growth agenda and deregulation and what that might mean for the economy. And I think some investors are coming around to the fact that if they really want to

press on some of the trade stuff and the tariffs, it really has the potential to kind of slow growth, especially in an environment where Liz just mentioned, where rate cuts are kind of going out the window here. And if you start to see the price of eggs go higher, if you start

see, you know, gas at the pump start to go higher, you might really lose the ability, I think, to kind of put some of this policy in place for two reasons. One is that there are a lot of fiscal deficit hawks in the president's own party, right, who don't want to do a lot of the stuff that is kind of part of that pro-growth agenda without cuts and the doge is supposed to get to the cuts. And the other one is just

sentiment. It's consumer sentiment, right? It's the kind of what is the president's marks on his promise to bring prices down. So I think those sorts of things are we're going to start focusing on further away from those hundred days that the president usually gets some sort of honeymoon period.

Well, what we got when we saw tariff news, or at least the prospect of tariffs being placed on Mexico and China, was a reaction in the market that was decidedly afraid of growth slowing down. And I don't think that's exactly what everybody expected. I think that everybody expected, maybe not every

everybody but I think a decent number of investors expected that tariffs would actually end up being pro-growth eventually perhaps inflationary in the near term but pro-growth eventually and the market reacted differently so I think we are finding out that markets investors maybe CEOs are looking at this as well wait a minute that might actually slow our progress and there's a number of different ways that could happen it could increase inflation in the near term which increases input costs for companies

and pressures their margins. It could slow down business activity because you've got people just kind of waiting and seeing what's going to happen. Now we've delayed tariffs. Remember, we haven't aborted them. So we still are in this wait and see process. And a lot of companies aren't going to make big decisions. And now here today, we are with another prospective headline about steel and aluminum tariffs, which if you look at the

importers or the people that we the countries that we import steel and aluminum from still targeting kind of canada and mexico so there's a lot still to be figured out here and i don't think it's going to be

decided anytime soon. No, and I look at what's going on and try to sort of bring in all these inputs. And then, you know, I keep coming back to the gold market for some reason. And Peter Burke had a very interesting note out that came out earlier this morning, talking about something that he's been hearing and the potential for the United States. And I don't know the mechanism to make this happen, Dan, but to sort of remark

their gold position, which is marked at $42 an ounce and remarket at current prices and what that could potentially do. And, you know, I look at gold and here we are today approaching $3,000 an ounce. Obviously, we've never seen that before. And against the backdrop, again, of a VIX at $16,000,

S&P 500 effectively at all time highs. You know, the Nasdaq holding in there like a champ. Gold to me is sort of this outlier that suggests something else is going on. I know you might have different thoughts on that, but that's where my eyes continue to go.

Well, you've been saying this for a while, right? Gold is this sort of, you know, it's this hedge against, you know, this demise of fiat currencies, right? It's also meant to be an inflation hedge. There's some other, you know, kind of things that I think gold bugs really focus on. But, you know, if you go back to late October, last time it was trading, you know, 2,800, which was an

all-time high, right? And that was into the election and then it started to sell off. It went down nearly 10%. That's a huge move for a risk asset like this, right? And then after the election, it started to kind of work its way back above that 2,800 level. But it wasn't until mid-December where it took off, then it took out that 2,800 and it's starting to kind of just... I mean, the pace in which it's going higher is starting to increase. It was kind of a low vol move. And I think...

Your point is that if you have these conversations now about what our government, one of the largest holders of gold, are willing to do, what is the reason for that? Right. And so I don't have the answer to that. But I think it's interesting that when gold sold off 10 percent, it was because of this kind of pro growth agenda. And then it kind of banged around for a month and a half.

Liz, and I know this is something that you've been bullish on too, just like Guy, but that move since kind of mid-December, you know, which is basically up 12.5% now, making new all-time highs for the last week and a half, it is suggesting something else is going on, you know, out there in macro land, I guess.

Well, I think what's going on is that the dollar got weaponized a couple of years ago and central banks got scared that they wouldn't be able to access their reserves. So they needed a different way to hold reserves in a situation where you couldn't weaponize them against it. So then you saw all this buying from the Chinese central bank. You see buying from a lot of other central banks.

And that's where the demand, the initial demand had come from. And that's why market participants were watching this and saying, who the heck is buying it? Where is it coming from? And that's where it was coming from at the time. Now, I think retail investors have started to catch on and you're seeing some demand on that side of the equation. What happened post-election, the dollar strengthened and that is the normal environment. That's the normal relationship where dollar strengthens, gold weakens. That is sort of how it should happen.

But then we got closer into the end of the year and into the beginning of this year and realized, well, wait a minute, we still have a lot of tension with other countries. We have a possible trade war coming. We've got some concerns over inflation again, renewed concerns over inflation. And then the demand for gold started to pick up again. And yes, I have been bullish on it for a long time. I've held it in a lot of different ways.

I did sell, I believe I talked about this last week, I did sell the miners because the miners were just so volatile post-election and it just wasn't worth that risk. It wasn't worth watching those swings and they are so politically dependent and headline dependent. So I did sell the miners, but I did take some of those proceeds and reinvest it back into a gold ETF.

you know what's interesting here is we're sitting we're talking about gold we're talking about some of these other things and i'm watching banks this morning which you know full disclosure i mean banks obviously have been trading pretty well dan and i think on friday you know even with the broader market selling off you know banks have been hanging around but today if you look across the board you're seeing some weakness in the banks and you know maybe it's a function of maybe some weakness in the small caps i'm not really sure but

as much as people want to be you know encouraged by the bank performance one thing i continue to say is you know a lot of these banks some of the metrics have gotten a little expensive in my opinion so thoughts on the importance of banks not necessarily today but moving forward

Yeah, I think there's a couple of things that we can tie to the conversations we just hit here as far as pro-growth agenda and some of the data suggesting more economic weakness than expected. There was an article, I think it was in Bloomberg, I'll find it, we'll put it in the show notes, talking about the deals market, which I thought was an interesting way to kind of put it. I don't know, Liz, if you saw that too, that January was basically the slowest month for deals, whether that's M&A and some other sorts of things that fall into

into that category, which was, I guess, surprising to many. And again, maybe the inauguration in the third week and some of the other, like the, you know, the pace in which a lot of these executive orders were coming out. But I just thought that was really interesting. And it ties back into what we were saying about CEO uncertainty, right? The worry about an agenda that might in the near term kind of slow growth, that sort of thing. And so I think if they're unable to kind of

stir those sorts of sentiments among the C-level suite, I think that has the potential. And we come in this week, Meta is cutting 5% of their workforce. Might we start to hear more of that? Guy, you mentioned last week, all of these government workers that are being offered buyouts, furloughed, or outright fired.

fired, right? And so this is at a time where if the economy does start to weaken, we're going to see much like 22 and 23, this sort of rationalization or whatever a lot of these big tech companies were calling. You might see that across lots of different sectors and the like. So to me, I just think that there's an interesting mosaic playing out.

that in the markets, a lot of the Trump trades are starting to kind of plateau a little bit or maybe come back. And then some of the activities suggest otherwise. And the last thing I'll just say again is like, might consumer sentiment take a dip based on all of this uncertainty? Well, consumer sentiment has already taken a little bit of a dip. And then this is something that I would remind people of. I know I talk about this a lot. When you look at the sentiment surveys,

University of Michigan and Conference Board. Always remember the University of Michigan cues more off of inflation. Conference Board cues more off of jobs. So if we've got concerns over inflation coming, you're probably going to see that come through in the Michigan survey. The question about deal making and the activity in the deal market

What you really have to do as an investor is think about, all right, what was that predicated on in the market? Financials had seen a lot of upside since the election, even before the election, in anticipation of financials doing well after the election because of a friendlier and expected friendlier dealmaking environment in 2025.

Now, I think it's a little soon to say, oh my gosh, it's not happening. It's too slow. Because to your point, Dan, I mean, inauguration wasn't until the third week. We know the market had kind of paused to just wait and see what was going to happen right away afterwards. We didn't have cabinet members appointed yet. So I think it's a little bit too early to really say that at this point. But if we get all the way through the first quarter and there hasn't been a lot of deal activity or things are coming in under expectations, then we probably have to take a step back and say, okay,

Did financials deserve all of this upside for the expectation of more capital markets activity? Because maybe we're not going to get that the way that we thought we were. The other thing to keep in mind is that when you have deals, there's obviously financial M&A and then there's strategic M&A. Everybody was expecting that there would be more strategic M&A, which is typically a positive thing.

But when you've got a market at all time highs and a lot of stocks trading much, much higher than they were a year ago or two years ago, you end up with this mismatch in valuations where companies think that they're worth a lot more than the buyer is willing to pay. So then you sort of end up in a stalemate. And I would expect that even if there is appetite for deal making, we're going to have some valuation discrepancy.

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A hodgepodge of earnings this week, Dan. I'll tell you the three that I'm looking at. You have AMAT on Thursday. You have Deere and Company, and then you throw in a Palo Alto Networks. I'll mention the three, the reason why I'm looking. Deere obviously has been sort of sideways to slightly higher.

the last four years a lot of people think that's breaking out very economically sensitive obviously palo alto its own animal something that elizabeth has talked about in terms of cyber security the importance for the software and then you throw amad in den this is the name you've talked about this is a stock that made its all-time high in july of last year and hasn't been trading particularly well since so three obviously very different companies very different stories

I think very different tells on maybe the economy, but those are the three that I'm watching this week. Yeah. AMAT's interesting to me because again, they make the equipment that goes into the fabs that make the chips, right? And so if you think of their customers, Samsung is a large one. Taiwan Semi is the second largest, about 11%. Intel at about 8%. Micron at about 3%. So, you know,

You know who they're selling their machines to, right? So if you think about Samsung and Intel, a lot of those end markets are some of the stuff that's not working right now. Consumer electronics and smartphones and the like. When I say not working, I mean not particularly growing. Taiwan Semiconductor is obviously the most important one if you think about just kind of, you know, their manufacturing of high-end machines.

- CPUs and the like. And so I guess the story with AMAT is that if you do see reshoring or you do see a diversification of fabs away from China, that should be pretty much a good thing, right? For AMAT who sells these machines that are gonna basically kit out

all these fabs. So I don't know, this one down nearly 30% from those all-time highs that you just mentioned, look kind of interesting to me, mid to high single digits, earnings and sales, trades below market multiple, I think this year at about 19 and a half earnings. And again, you're not buying a name like this based on valuation, but when you get that sort of discount to the broad market and you see some of

the valuations that their customers are trading at. Maybe it does look particularly interesting. I guess I'd rather be long this than short it because I don't think expectations are particularly high, especially when you think about just the expectations into the hyperscalers. We mentioned this. The fact that

Meta, Google, Amazon, we're all trading at all time highs, you know, into their prints. That sets up for a really high bar. I think the situation with AMAT is quite different. And then Palo Alto is interesting to me just to hear what they have to say about the integration of generative AI tools. This is obviously a security company and there's going to be

increasingly need for those things. It's one of the reasons why, Guy, you mentioned it all the time. You can't buy them on valuation. They're always going to be rich until that market becomes a bit more saturated. So it'll be interesting to see how that one trades, given the guidance that they have and the narrative that they tell around it.

but before that elizabeth on wednesday you know i find this to be a potentially market moving day cpi on wednesday but not only that jerome powell is testifying in front of congress on wednesday as well which you know you're going to see some i think some some fascinating questions sort of hurled his way in the wake of a lot of the things we've heard from president trump and a lot of things we've heard over the weekend

about waste at the Federal Reserve and those types of things. So in order, you know, CPI, we have PPI on Thursday, Jerome Powell's testimony on Wednesday. How how market moving potential you think these could be?

Yeah, well, just to look at the numbers. So CPI expected headline, meaning everything included year over year, is expected to come in at 2.9%, which would be exactly the same as what it was last month. So anything above that with a three handle would be a negative surprise, I think, for the market. That's definitely something to watch. We also always talk about the super core measure now, which is core services X handle.

housing and that basically strips out everything that's been a problem for the last few years and gives you a number the super core number has been moving in the right direction but for the last few months we've been plateaued in inflation and this goes for cpi this goes for pce we've sort of

plateaued, we're moving sideways. We're not necessarily moving down anymore, meaning we're not making that much progress. And the Fed wants to see more progress before they're going to be promising us any more rate cuts, which is why the market continues to expect only one or two this year.

I do think that Jerome Powell will probably get questions about waste of the Federal Reserve, but I would expect that he will deflect those questions or even deny and just say, I'm not talking about that the same way that he has in recent press conferences. Basically, I'm not getting into the politics of this right now, or maybe I haven't had any contact. Maybe he'll be asked if he's been contacted by Elon Musk or Doge, and he'll answer those probably directly. But I would expect him to sidestep that conversation.

Thoughts, Stan? I know you watch this as well. Probably not as you're not as sort of fascinated as these things as Liz and I are, but obviously something you're watching.

I'm a reasonably fascinated guy, Dami. I'm reasonably fascinated with your guys' views on it. I mean, when I think of CPI, I think of the potential for volatility. We've seen some volatility over the last year around this print, right? And so if you were to start to see, let's say, inflation firming up, which it has done over the last few months or so, and start to kind

kind of indicate it's going higher. I think everything that we just talked about for the last 25 minutes, you know, really starts to look the opposite way as it relates to growth. And I guess, you know, Jerome Powell, I give him a lot of credit for kind of standing tall a little bit. I think both of you guys feel that that September 50 basis point cut was a little bit of a panic. It was a little bit of maybe the Fed being uncertain as the outcome might be

I don't think it was political, but I think it was definitely had something to do about getting something in before, you know, we had a new administration one way or another. But when I think about the potential for volatility around that, you know, the S&P is pricing about a 1.3, 1.4 percent move between now and the end of the week, which is.

is a little bit higher than we would normally sort of have, and that's 100% in and around the Fed. So, you know, I just feel like if inflation is benign, I don't think we get a lot of volatility. I think if, you know, inflation is firm to higher, I think that's the sort of thing Liz just said, you know, the rate cut move,

or the rate cut expectations are kind of moving out a little bit. What'd you say? 50% chance of a 50 basis points in cuts this year. So if we start seeing that go away, I just don't know how the S and P trading where it is doesn't take a five to 10% dip at some point over the next few months. Yeah. Before we get out of here, I'll say, you know, I look at obviously the TLT and the,

we have traded up to recently the third point of a downtrend. And I only bring that up because, you know, I'm one of the people out there that think rates, especially 10-year yields, are going to start to sort of do this ramp back higher. And, you know, maybe that little crescendo we saw last week when rates traded down about 4.4% was it for the short term. So, you know, all eyes on that for me as well. I'm surprised the VIX stand is below 16.5%, although I guess I shouldn't be.

given what we've seen over the last year, year and a half. But that's something I'll watch as well. And I will continue, as you pointed out earlier, to watch this underperformance potentially for the banks this week too. Yeah, I'm going to go backwards a little bit here. I actually fall in the camp of, I think they should have done 50 in September. And I supported that at the time. I continue to support that. I think the biggest risk on the Fed is that they look behind the eight ball. I think what they were trying to do was look ahead of it.

and not be so reactionary and try to chase their own tail if employment continued to weaken. And we had seen just recently a pretty weak labor report. So I think they were reacting to that. I think also the wish was that they would have cut in July. They didn't cut in July. So then they had to catch up with themselves in September. So I still think that they should have done that. And I think the market has actually reacted pretty well to it.

So, Liz, just really quick to put a bow on that. I mean, at the time, the Fed said exactly that. They said they're more worried about weakness in the jobs market. Right. So if you look forward, you look at some of those revisions that we got on Friday. You know, so we had a weaker across the board, you know, data for the balance of twenty twenty four is probably going to be front and center with this conversation with Fed Chair Powell.

on Wednesday. And I just wonder, and I think this is a view that Guy has had, if we start thinking about downside to the economy, if we start thinking about higher unemployment, despite it just ticking down, you know, that's the sort of thing where the Fed gets themselves in a really difficult situation because if they lower interest rates again and they kind of slow down

You know what I mean? Their sort of view to what the president wants right here. It has the potential to get oil back above 80, the price of eggs, you know, towards $10. You know, these are all the headline things that kind of put pressure on policy, right? And Fed policy in particular. And so I think they're kind of boxed in here one way or another.

yeah i don't know that they would have been able to avoid that though i think some of the inflationary pressure is coming from outside and we talked about this guy and i have talked about this the fed can't control the labor market that it's one of their mandates but lowering rates doesn't create jobs so they can focus on it and i think they needed to react that way i think the market actually would have reacted very negatively if they didn't do more back in september so

I think they had to. They were backed into a corner then, too. And so far we've survived it. I think they are probably crossing their fingers knowing that if the labor market weakens and inflation stays where it is, they're really stuck because that's a bad spot to be in. And that's basically would be the Fed's definition of stagflation. And then what do they do? Right.

And they have to decide. And one of the statements that Jerome Powell has made over and over again is that inflation doesn't work for anybody in the economy. High prices don't work for anybody in the economy. So if they had to choose which mandate to focus more on, I'm guessing they'd probably try to focus on inflation. But if the labor market got really, really weak, they'd have to do something about it. I continue to think, and I remember saying this last summer, their threshold for pain, though, is higher than most people's threshold for

pain. I think they would allow the labor market to weaken to a point that was probably uncomfortable for the rest of us before they'd actually react to it.

Well, I think you can get some more tape bombs this week is my sense. But that's something I think we've come to understand. It is sort of de rigueur, as the French say. We have market call this week. Looking forward to that. A bunch of podcasts coming down on the risk reversal media site. So keep an eye open for that, Dan Nathan. You have some pretty cool guests as well that you're bringing in.

Yeah, that's a great point, guys. So obviously we do Market Comp Monday through Thursdays, 1 p.m. Eastern. Liz is going to join us on Wednesday, as she always does. But the Risk Reversal podcast, it's been rebranded. We used to do the On the Tape podcast Monday, Wednesday, Friday, and OK Computer Tuesday and Thursdays. Now it's just the Risk Reversal pod. I have Deirdre Bosa on with me dropping tomorrow morning. She is CNBC.

He's tech check host. We're going to do a bit of a rundown on all of that kind of hyperscaler CapEx and the market reaction to that later on in the week. I have Rick Heitzman. He is the CEO founder of FirstMark Capital. He is an excellent VC. And I'm going to get a sense of just what expectations are, again, for the IPO backlog. We keep hearing how big it is and what does it look like for strategic M&A. So these are some of the areas that I think a lot of folks are kind of asking about. And towards the end of the week, we have Steph

Stephanie Link. She is one of your partners, I think, in crime on the HTR guy. And she also finds herself on the closing bell with our good friend, Scott Wapner. So we're going to get her look on things. We got a lot of stuff going on and you and I are going to be back. I think, you know, people just, you know, they just can't get enough of this guy. Well, I don't know about that,

but we will be back. Obviously, as always, thank you to EYT, Dan Nathan, G Swizz here, bask in the glory of an Eagles Super Bowl victory, two weeks of no NHL. But we'll talk about that at some point later in the week. Thanks, everybody.