The Trading Floor: Are Markets at a Tipping Point?
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Welcome to the Market Maker podcast, hosted by me, Anthony Chung, where every Friday I talk to a member of the team about what happened in markets this week. From macro themes and single stock news to cryptocurrencies and careers in finance, our aim is simple, to make finance interesting and easy to understand for everyone. So let's get to it.

Hello, welcome back to the Trading Floor episode and a little bit earlier this week. So fear not, Nvidia earnings do drop tonight. The day we're recording this on Wednesday, but Stephen is going to unpack that in full and that will be released on Monday. So make sure you like, subscribe, do what's necessary so you can stay informed with all things markets and corporate finance. But in this conversation, what I wanted to pick your brains about, Piers, is a simple question.

How are you feeling? How are you feeling about markets in general? What's the vibe at the moment? And the reason why is because there was a headline in quite a well-followed FT newsletter entitled, Is the Vibe Shift for Real? That in combination with my brother reaching out to me on WhatsApp earlier this morning and going, what the heck is going on? Why are markets going down? Which probably, again, shows his hand that he's long big tech and

But beyond that, the fact that he's asking that questions and he's a fairly well-informed person, he's probably not the only one who's sensing that the mood might be shifting. So just wanted to get your perspective and if you could break that down for me today. Yeah, the vibe, the vibe barometer, I guess has definitely sort of

tweaked in the negative direction over the last since Friday last week, right? So there was something happened on Friday in markets and then actually it's just kind of fed through into this week and again stocks down yesterday and it's all of a sudden it's not now one down day. It's a few in a row and when you've got a US stock market that's been on fire for two years a few big down days in a row that that doesn't happen.

So that's why your brother's on WhatsApp going, hang on, hang on a sec. I thought it was by the dip. What? The dip's just getting lower. So I think there is something a little different. The other thing I'd say, and again, the headline on Friday, the S&P 500 US stock index dropped 1.7%. Now, in isolation, obviously, that's a bad day, 1.7%. But it's not like, it's not a right, it's not a collapse, right?

it is the second biggest sell-off, single-day sell-off since mid-December. And so there were two other big single-day sell-offs, right, since mid-December. One was on the day where basically the Fed signalled in their meeting in December that they're not going to cut

They're going to stop cutting. Right. No more cuts for the foreseeable future. Let's just see how things go. Right. That stocks took that badly. They were hoping for more cuts in 2025. They haven't come. Right. That was one day. The other big day was deep seek. Now, both of those incidents were very, very specific catalysts that triggered a little bit of a mini tantrum.

markets dropped sharply. They then rebounded in the main, right? What's different about Friday, you can't pinpoint the reason for the sell-off on one single specific thing. So this is why this is a little different. And we've had a few down days in a row now. And that's because it's more of a combination of factors that are coming together to really build a thesis that

Whereby, hang on a second, is this mega resilient US economy actually showing signs of cracking? So, but don't, let's not get ahead of ourselves, right? We've had a few down days. There's some really key information flow that we're going to get over the next one and two weeks.

At NVIDIA, as you said, tonight being absolutely the first one of those mega important numbers. And we'll talk a bit about those in a bit later. But, you know, let's not get carried away here. A few down days in a row, unusual for sure. But this doesn't mean it's the start of a big bear market now over the next few months. It could be, but depends on what the data is. So maybe we should just kind of drill into this data set.

kind of that's been hitting wires over the last few weeks or few days. Because I guess there's different pockets to this. There's Trump coming in, there's a tariff thing going on, there's always ongoing geopolitics. But perhaps the data one, like I know there's been a few different things from PMIs to housing to confidence numbers. So maybe we'll start by unpacking those first. Yeah, and you're right. Obviously Trump, right? Trump is, that's an underlying theme

that's been in markets for months, right? Because obviously we were pricing in his win in October. He won. Now he's in office since January. All right, since he's got into office, stuff's happening at a much faster rate. Some good, some bad. There's uncertainty, of course. Positive and negative surprises to come for sure. Trump's an underlying theme. That's not going away, right?

But look, markets have been smashing to the upside with that underlying theme. So you can't tell me it's Trump. And actually, on the geopolitical front, I mean, think what you want. But it does look like a Ukraine-Russia thing might be a deal, might be in the offing, right? So anyway, let's just put Trump aside because really, in the end, it's about the economy.

That Trump risk is really about the future. How will what he does or doesn't do impact the economy in the future? What we want to know is like hard data, you know, what is happening in the economy. And as I said, it's been super resilient in the face of really high interest rates for a couple of years. But, and so we had a few sets of numbers last week. So one's called the PMI, Purchasing Managers Index. And all of the numbers that have suddenly turned soft are actually forward indicators of,

And some of them are what we call sentiment surveys. So it's basically, it's not hard data as in, I don't know, industrial production. What was the increase or decrease in industrial output last month? That's a hard fixed number to

that's been calculated, you can't argue with that, right? That's hard data. Soft data, which is basically what's turned negative here, is sentiment. So how are you feeling about X, Y, Z as a human being or as a business?

And then it's about lead indicators. I'll talk about housing in a minute. There's been some bad housing data, right? But let's start with the PMI, the purchasing managers index. It's a kind of business survey. It's got a hell of a lot of elements to it. I'm not going to go into detail here, but there's two sides. There's the services sector and then there's the manufacturing sector. Okay.

An economy like the US, developed, mature, tends to have a much bigger services sector than a manufacturing sector. And it's the services sector PMI that was particularly bad, surprisingly bad at the end of last week. Now, this is a bit of a sentiment survey for businesses. How are you getting on as a business? How are things looking today?

ahead. And this number dropped sharply. It came in at 49.7, which was a big drop from the last month's number at 52.9. Last month, it dropped sharply from December's almost 57. So we've had two big steps down in services PMI in the last two months. Now, the key with the February reading, it dropped below 50.

So it's 49.7. Now, with that indicator, anything below 50 shows that the businesses on average are worried about contractionary conditions for their business going forwards, right? So this is like really bad. And actually, it's the worst reading. Let me just get it. It's the worst reading. I've got to go back to January 2023.

was the last time this thing was below 50. So that is notably bad. And the PMI readings, like the investment community do pay attention to that. That is one of their favorite sort of economic barometers because we get economic data announced all the time. There's like thousands of economic measurements going on all the time. And there's a few that kind of

you'd categorize as the most important. I put PMIs up there. And so that's why that's key. So that was a surprise. Then on top of that, on Friday, we had something called the University of Michigan Consumer Sentiment Survey.

which is probably the most notable and the most popular and the most looked at consumer sentiment reading in the US. And it's just, it's a survey done every month by the University of Michigan. And it's just designed to take a temperature test. Oi, you consumers from lots of different brackets, right? They go right up the income bracket.

And they're asking loads of people in different segments of the income range, how are you feeling? You know, how's your economic situation? And really, it all boils down to this one number. What's the sentiment out there? And this is designed to be a lead indicator towards consumption in the future. You know, just basically, if consumers are feeling pessimistic, worried, they're going to spend less. And then if they're feeling optimistic, happy, they're going to spend more, right?

Now, this survey reading on Friday came in at 67.8. Massive. Oh, sorry. Sorry, 64.7. Apologies. It dropped from the previous month's reading of 71. And look, again, it's the worst reading we've had since, well, like for, you've got to go back to 2023, right? So all of a sudden, you're getting some sentiment surveys tip and turn the most negative for one or two years, right?

And people are going, hang on a sec. Is this US economic resilience? Is this the beginning and the end of it? Yeah, and compounding that, you had a similar-ish to the Michigan was the conference board's consumer confidence reading. And that fell even more aggressively. That fell this month by the most since August 2021 on concerns about the outlook for a broader economy. And in fact, it's decreased seven points more

to 98.3 and that's the third straight decline. So it's not, I mentioned before, or you've mentioned before how people tend to like to see consistent patterns and not a one and done reactionary effect to a bad data point, for example. But the point is this thing's been heading south for three straight readings now. Yeah. So there's a trend.

And so the trend's down and it's a lead indicator. And that's why, look, markets have had a bit of a wobble. And let's put some some numbers on this because the S&P on Friday, because don't forget, the S&P last week set a new all time high. So let's not get and it just nicked above 61.50.

on, I think it was Wednesday last week. So literally one week ago, the market set a new all time high, but it's gone from 61.50 to 59.50. That was the low that we hit kind of into the sort of yesterday afternoon. Right. So that's a pretty solid, you know, 200 point drop in short order. So it's the speed of it. Um,

But we're still not far off that all time ever high, right? So that's why I say, you know, yes, it's been a bad week, but let's not get carried away. However, I think the vibe has changed a little bit. And I would say that ultimately, it depends what's coming. As always, we've had a bad run. Is this a chance to buy the dip?

or not. And ultimately the answer to that question is in there, what lies ahead in terms of the information flow we're going to get in the next few days and weeks, starting with tonight in video. We've got, you know, non-farm payrolls reading coming, well, that's, you know, next week. But ultimately at the start of each month, so when we get into the next week, which is the start of March, you start to get an update on all of these kind of big macro readings, including, you

The labour market and non-farm payrolls, second week of March, we'll get the inflation reading. And so ultimately, people have got to decide, is this a good thing? As in, well, if the heat is coming out of the economy a little bit, well, then actually shouldn't that dampen inflation?

And so shouldn't inflation finally come down to 2% enabling the Fed to cut rates through 2025? That would be the positive story here. The problem is there's a big negative version, which is this is the start of the economy starting to come off and weaken, but inflation stays high. So

I mean, some alarmist journalists out there are starting to use this word called stagflation, which is the worst of both worlds, right? Where you get a weakening economy, but inflation stays high, meaning the Fed, their hands are tied in terms of being able to cut rates to stimulate a weak economy. And you're left with a bit of a nightmare, a recession with high inflation, right? Ultimately, that's your absolute worst case scenario, right?

Is this the beginning of a slide into stagflation? Let's say to get to stagflation, you've got like a 100 step downward staircase to get there. Right. I reckon we've just taken the first two steps down. OK, and we could turn around and come back up.

So let's not get too worried about journalists rolling out the stagflation word. But it could be that we take another few steps down that staircase in the weeks to come. If the data continues to come in weakness on the economic side with inflation staying high, well, sure. Now, the problem is, and we're back to where we started on sentiment.

If we, let's say we've taken a couple of steps down the staircase, data comes and we take a few more. If we get 10 steps down the staircase, well, if sentiment gets wrapped up into all of that,

And you start to get this snowball effect of, hang on, sentiment's bad. People are worried because of this data. And then their behavior starts to result in the data getting worse, meaning they just start spending less money and consumption drops. So you could easily trip at the 10th step on the way down and tumble very quickly to the 50th step. You know what I mean? But we're nowhere near that. We're only on the second step. So...

Whenever I hear all this sort of talk, it just makes me feel even more optimistic for the future in a sense of not bullish. I think that's a bit too strong a word, but I always feel like it's almost like the pressure cooker letting off a bit of steam in the big tech firms. I think that's a necessary evil. The fact that they've come off, they're in a correction is what you read. They're 10% off their high in only really a space of a few weeks.

The only thing is... You're talking about Mag7. Mag7. Mag7 specifically. So what? They powered a 54% surge in US stocks over a two-year period. The Mag7 now are down 10% from their peak, which was seen in mid-deck. I think that's a good thing, even though it's a bad thing if you're trading this stuff short term. One of the other things I was thinking, though, was like...

like you mentioned briefly, there might be a potential deal on the horizon to at least, you know, the Russian-Ukraine thing. Equally, Xi Jinping has come out and has stayed relatively composed, I would say, in the face of domestic global challenges, what's happening in the local economy, but also we're dealing with Trump and the tariff situation. So that kind of curtailed that risk a little bit. And then I think with Trump,

He hasn't, you know, he has had a few pop shots at Powell when he first came in. Yeah. And Powell is kind of like, you can't fire me sort of thing. But it's got a bit quiet on that front. And the fact that you've got Bessett as the Treasury Secretary, I think Trump will be fully aware of this vibe. He, if anyone, has probably the greatest sensitivity to the sentiment. Yeah.

Because he anchors a lot of his optics around the strength of the economy defined to the average Joe by the strength of the stock market. And I just wonder whether already I feel like the tariff has been more bark than bite, even though it is materializing. And so with all of this coming together, and also in Germany, we also had these elections.

And one of the things I was reading about the German elections was that it could herald a fiscal loosening. Although long and uncertain, as coalitions, they will get very messy. The idea here, though, is that a future coalition is likely to have, agree on more funds for infrastructure. And generally, that's good for business as well. So it seems like there's a bit of a counterbalance here. I do agree with you. I feel like we've gone...

Well, it's the media's job to push us down some of these roads because it sounds quite sensational. I don't think I agree that we're there yet. Step two out of 100 sounds about appropriate to me. One thing BlackRock was saying, they put out a weekly commentary piece, which is quite useful because it just gives you a sense check. And what they were saying is that they still expect the U.S. to reclaim leadership this year. They stay overweight U.S. stocks this year.

And this is quite interesting because obviously European stocks have been on a tear of late, which we've commented on in recent episodes. Quite the opposite with some of the US, predominantly Mag7. But they've said that they're staying overweight US stocks as corporate earnings strength and AI theme broadens out.

They stay overweight even with their softer start to 2025. And they think their lead over global peers, though, could narrow this year. And I think that's a reasonable assumption. Yeah. And I think, look, you're going to get a serious litmus test of all of that tonight with NVIDIA. Like if NVIDIA, like, because this is the first deep seek was such a big moment a few weeks back. And as I said, it was one of those moments

catalysts that led to a one-day sell-off, one of the big one-day sell-offs over the last few months. So, like, Tanak, it's not so much about NVIDIA's revenue for the quarter that's just finished. What are NVIDIA going to say about the rest of 2025? How are they going to alter, if at all, their revenue forecasts for 2025?

Now, they could come out. I doubt this is going to happen, but it's a small risk. They could come out and go, you know what? We're having to revise down our 2025 revenue forecasts because DeepSeek has been a game changer and we're already seeing a reduction in orders for our Blackwell chips from our big customers, the Mag7. Now, if that was said tonight...

then this sell-off's only just started, right? Chances of that being said tonight are very low, I would say. I would expect Jensen tonight to come out and be very positive, deep seek, whatever, doesn't mean anything, small road bump. Actually, our 2025 revenue pathway looks super solid, all right? And he'll come out punching, in which case, right, that might reassure people. And okay, fine.

by the dip mentality might kind of come in, right? So I think that test tonight off NVIDIA is actually a really important one. The other thing I would say is with the Mag 7, the performance has been quite divergent. I mean, really two of the Mag 7 have performed really bad. One has performed really badly, which is Tesla, which is down 25% since its peak in December. Meta's the next worst, down about 12%.

The others, they're all down, but it's less than five. It's two, three, four percent down. But Tesla and Meta were the big outperformers, though, in the prior 12 months, right? Yeah, exactly. So it makes sense that they're kind of profit taking. And look, we had some bad news out of Europe for Tesla yesterday, just about their vehicle orders in January went up.

halved compared to the year before so right there's there is some specific single stock bad news coming out here but um generally speaking yeah meta and tesla have been the best best performers so it makes sense that the kind of coming off the top is a bit sharper for those where you know investors are booking a bit more profit yeah

One thing you've got at the end of this week as well is US core PCE data, personal consumption expenditures, and that is expected to cool to the slowest pace since June, going off analyst expectations. So if you get a punching Jensen, yes, reassuring statement of intent for 25, you get indeed cooling, if not even faster cooling.

in something like a preferred metric that the Fed look at as a pulse on inflation. Yeah, then it'll be a strong end to the week. So what? Conclusion is we're at a bit of a tipping point, but we need to have an open mind, receive the information coming in. Going to sound like a central banker now. We remain data dependent on future decisions and we remain open to all options. Have you covered enough bases there or what?

But yeah, in a nutshell, that's Spot on. All right. Well, look, what I'd love to do is you let us know what you think. Just more broadly, I know on the Spotify function there is a way to leave a comment. Please do. You know, we're not saying we're right or wrong. And I will also add a poll to this episode.

just to get a temperature check and you can't sit on the fence you either need to be like no this is okay or no this is going to get worse yeah I'll leave it like that okay cheers Piers thanks everyone see you next week see you later

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