The weekend’s appalling events in Minnesota provoked Congressional maneuvering that triggered the very real risk of another federal government shutdown by the end of the week (the prediction market odds rocketed from a 9% likelihood to 80% in a matter of hours) which could toss financial markets into another economic data slop bucket.
Nevertheless, following a choppy Asian session, New York traders who made it to their posts on Monday in the wake of the winter storm carried stocks higher to within touching distance of more new all-time record highs on subdued volume to start a week dominated by Big Tech earnings and a Fed meeting.
Trump barked more threats at Canada and South Korea, but markets aren’t really listening any more as the default position now appears to be that he’s more likely than not going to backtrack on his tariff rhetoric, so why bother worrying about it?
Consumer confidence in the economy cratered to twelve-year lows and is now at levels well below where it was even in the scary early weeks of COVID, according to data released on Tuesday. Amazon and UPS announced colossal layoffs. A good number of healthcare and insurance stocks plunged as Medicare payment rates from the government were essentially frozen and United Healthcare simultaneously issued an awful earnings report and a depressing outlook.
But Wall Street shrugged off this rather miserable backdrop, seemingly betting that Congress will eventually find some kind of a shutdown off-ramp before the weekend and the indexes moved upwards again on the back of some mostly positive other (more B-list) Q4 earnings with a number of higher impact Mag 7 reports on deck for later in the week. The S&P 500 index closed at yet another all-time high.
A big Wednesday dawned with stocks adding some weight to the rally with the S&P 500 briefly breaking through 7000 at the open in advance of the Fed Funds Rate decision at 2pm ET and chairman Powell’s press conference half an hour later.
Obviously there was no rate cut with two dissents out of twelve voting members, including one from next-chairman-candidate Chris Waller, which was perceived by most observers as nothing more than a “Look at me sir, I’m doing what you asked! Please pick me!” signal to Trump.
In what ended up being a snoozer of a press conference, Powell shut down any discussion of the threats from the White House to his own position or to Fed independence in general. Stocks closed the session flat and attention quickly turned to post-closing bell Q4 earnings reports from three of the big dogs.
The bar is high when it comes to tech earnings and simply matching or even somewhat beating expectations is simply not good enough any more. While Tesla’s results were just meh, Meta meaningfully topped estimates by enough to see its stock price move higher in the aftermarket. Microsoft strongly disappointed.
Geopolitics returned to center stage on Thursday with Trump’s war threats and Iran’s aggressive response spiking oil prices. The US trade deficit widened as exports fell and imports rose despite tariffs. At least a partial government shutdown by the weekend remained very much on the table. Meta soared higher but Microsoft crashed hard and had its worst day in over five years.
The indexes took this all very badly at the open, particularly Big Tech as markets were reminded about gigantic levels of AI spending that may or may not pay off and the rising risks of ongoing circular financing in the industry.
A late bout of dip-buying limited the damage and after the bell we got Apple’s earnings. AAPL shares had fallen for eight straight weeks, the longest such losing streak since 1993 but the report was impressive, beating expectations on most metrics including record-ever global iPhone sales.
Senate Democrats and the White House appeared to be close to a deal on Thursday night to kick the shutdown can down the road, but the big news on Friday morning was Trump’s nomination of former Fed governor Kevin Warsh to succeed Powell as Fed chairman. While not Wall Street’s first choice (that was Rick Rieder), there was some relief that the awful Kevin Hassett and teacher’s pet Chris Waller were not tapped.
Stock market reaction was initially muted and interest rates didn’t do much, indicating that Wall Street was generally comfortable with the choice but also Warsh’s Senate confirmation is not yet in the bag.
However, stocks spent the rest of the session accelerating losses - once again dragged down by tech - to finish the day in the red, the week essentially unchanged but the month in the green.
Last week, the US Dollar fell to levels not seen since 2021 and a declining domestic currency makes holding overseas securities more attractive for US-based investors and the strong outperformance of international stock ETFs reflects this (including all-time record highs just last week). Also, Small Cap stocks in the US are behaving significantly better than Large Cap stocks so far this year (see LAST WEEK BY THE NUMBERS below).
This all emphasizes the importance of holding a non-concentrated, sensibly diversified portfolio that goes well beyond just big US tech companies. Owning individual stocks or even nothing but a market-cap weighted S&P 500 or NASDAQ index fund is sub-optimal right now.
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ARTICLE OF THE WEEK ..
“People take more risk when stocks go up and the economy is booming, and it can last surprisingly long.”The Wall Street Journal’s Jason Zweig on the importance of separating a “Mad Money” cowboy account where you screw around with speculative bets from your actual real investments.
.. AND I QUOTE ..
“Investors hate uncertainty. Well, that’s just tough. Uncertainty is all investors have ever gotten.”
Jason Zweig, Wall Street Journal
LAST WEEK BY THE NUMBERS:
Last week’s market color courtesy of finviz.com
Last week’s best performing US sector: Energy for the second week in a row (two biggest holdings: Exxon-Mobil, Chevron) ⬆︎ 3.3% for the week
Last week’s worst performing US sector: Healthcare (two biggest holdings: Eli Lilly, Johnson & Johnson) ⬇︎ 1.7% for the week
* SPY, a US Large Cap ETF, tracks the S&P 500 index, made up of 500 stocks from a universe of the largest US companies. Its price rose 0.4% last week, is up 1.5% so far this year and ended the week 0.8% below its all-time record closing high (01/27/2026).
* IWM, a US Small Cap ETF, tracks the Russell 2000 index, made up of the bottom two-thirds in terms of company size of a universe of 3,000 of the largest US stocks. Its price fell 2.0% last week, is up 5.5% so far this year and ended the week 4.4% below its all-time record closing high (01/22/2026).
* VXUS, a Global Non-US ETF, tracks the MSCI ACWI Ex-US index, made up of over 8,500 of the largest names from a universe of stocks issued by companies from around the world excluding the United States, in both developed and emerging markets. Its price rose 0.2% last week, is up 5.6% so far this year and ended the week 2.2% below its all-time record closing high (01/27/2026).
INTEREST RATES:
* FED FUNDS RATE * ⬌ 3.625% (unchanged from a week ago)
* PRIME RATE ** ⬌ 6.75% (unchanged from a week ago)
* 3 MONTH TREASURY ⬇︎ 3.67% (3.70% a week ago)
* 2 YEAR TREASURY ⬇︎ 3.52% (3.60% a week ago)
* 5 YEAR TREASURY ⬇︎ 3.79% (3.84% a week ago)
* 10 YEAR TREASURY *** ⬆︎ 4.26% (4.24% a week ago)
* 20 YEAR TREASURY ⬆︎ 4.82% (4.78% a week ago)
* 30 YEAR TREASURY ⬆︎ 4.87% (4.82% a week ago)
Data courtesy of the Federal Reserve and the Department of the Treasury as of the market close on Friday
* Decided upon by the Federal Reserve Open Market Committee at periodic meetings 8x a year. Used as a basis for overnight interbank loans and for determining high yield savings interest rates.
** Wall Street Journal Prime Rate as of Friday’s close. Tending to move in lockstep with the Fed Funds Rate, this measure is used as a basis for determining certain consumer loan interest rates such as credit cards, auto loans, personal loans, home equity loans/lines of credit and securities-based lending.
*** Used as a basis for determining mortgage interest rates and some business loans
AVERAGE 30-YEAR FIXED MORTGAGE RATE:
* ⬆︎ 6.10%
One week ago: 6.09%, one month ago: 6.16%, one year ago: 6.95%
Data courtesy of the Freddie Mac Primary Mortgage Market Survey
INTEREST RATE EXPECTATIONS:
Where will the Fed Funds interest rate be after the next rate-setting meeting on March 18th?
* Unchanged from now .. ⬌ 85% probability (85% a week ago)
* 0.25% lower than now .. ⬌ 15% probability (15% a week ago)
With seven more rate-setting meetings in 2026, what is the most commonly-expected number of remaining 0.25% Fed Funds interest rate cuts this year?
* ⬌ Two (unchanged from a week ago)
Data courtesy of CME FedWatch Tool
All data based on the Fed Funds interest rate (currently 3.625%). Calculated from Federal Funds futures prices as of the market close on Friday.
PERCENT OF S&P 500 STOCKS ABOVE THEIR OWN 200-DAY MOVING AVERAGE:
* ⬇︎ 63%
One week ago: 65%, one month ago: 63%, one year ago: 61%
Data courtesy of MacroMicro as of Friday’s market close
This widely-used technical measure of market breadth is considered to be a very robust indicator of the overall health of the S&P 500 index.
A high percentage (above 70%) generally suggests broad market strength and a bullish trend, while a low percentage (below 30%) may indicate market weakness and a bearish trend.
FEAR & GREED INDEX:
“Be fearful when others are greedy and be greedy when others are fearful.” Warren Buffett.
Data courtesy of CNN Business as of Friday’s market close
The Fear & Greed Index from CNN Business can be used as an attempt to gauge whether or not stocks are fairly priced and to determine the mood of the market. It is a compilation of seven of the most important indicators that measure different aspects of stock market behavior. They are: market momentum, stock price strength, stock price breadth, put and call option ratio, junk bond demand, market volatility and safe haven demand.
Extreme Fear readings can lead to potential opportunities as investors may have driven prices “too low” from a possibly excessive risk-off negative sentiment.
Extreme Greed readings can be associated with possibly too-frothy prices and a sense of “FOMO” with investors chasing rallies in an excessively risk-on environment . This overcrowded positioning leaves the market potentially vulnerable to a sharp downward reversal at some point.
A “sweet spot” is considered to be in the lower-to-mid “Greed” zone.
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