From tantrum to euphoria to panic – A market trapped in a mid-life crisis

• Where were the Buyers? (Hint – They were alive and well).
• More rotation….The action remains erratic.
• Gold up, Oil up, Bonds steady.
• Kevy Warsh, the FED and the path forward.
• Try the Rigatoni with Chicken and Broccoli.

So here we go…ready?

The moves recently in the market can only be described as schizophrenic, manic, and erratic. Monday was all about hard economic data — real numbers, real strength — and investors piled back in, pushing stocks to fresh highs after Friday’s Kevy Warsh-induced selloff. Disaster on Friday, redemption on Monday. Classic market whiplash.

Then Tuesday showed up… and the mood got sour very quickly…..going from jubilant on Monday to doomsday on Tuesday…. the issue that lit the fuse?? A new release by Anthropic that was billed as a ‘productivity tool’ for the legal industry, marketing and data industries that was seen by investors as a death knell for some in those industry’s …. Automating legal drafting, research, marketing, data analysis, cross-app workflows — the whole thing sent investors, traders and algo’s into a frenzy….. Add in concerns about security and safety risks, and boom… they couldn’t see straight!

And if you want proof of how anxious this market really is, here you go -

On Friday they threw a temper tantrum, On Monday they were in love with anything tech and everything else and on Tuesday it was ‘throw the baby out with the bathwater’ mentality….nothing in tech was safe – which doesn’t mean that the whole market got slammed – because it did not…there are (were) safe havens….

We found strength in Industrials +0.8%, Utilities +1.5%, Consumer Staples + 1.6%, Energy +3.25%, Basic Materials + 2.1%, Home Builders + 2.2%, Airlines +1.4%, Metals & Miners + 5%, Aerospace & Defense + 3%, Exploration & Production + 3%, SMID’s +0.3%...

But there was real weakness in the Nasdaq, Mag 7, Semi’s, Software, Cyber, Disruptive Tech, Expanded Tech Software, Expanded Tech Sector, Quantum all got wrecked…. think SOXX – 2%, CIBR – 3.6%, ARKK – 1.2%, QTUM – 1.5%, IGM – 2.3%, IGV – 4.6% - Capisce?

Shares of individual companies that provide different forms of legal tools/research tools/marketing/security – all got hit over the head….LegalZoom – LZ fell 19%, Thomson Reuters – TR lost 15%, NOW – 7%, PANW -5.2%, CTSH – 10%, DDOG – 7.3% and that’s just a sample of the damage. Some of these names not only got kicked to the curb yesterday, but they have not been on the ‘best performer’s’ list for a while…. think NOW – 48% since July, PANW – 25%, CTSH – 16%, LZ – 36%.... and that list goes on as well.

And the private equity firms that are publicly traded – oh yeah, they got beat up too! CG – 3.5%, BX – 5.2%, KKR – 9.7%, ARES – 10% & BLK – 4.4%.

But the contra trades were having a field day! The VIX surged by 12% and that sent the VIXY up 4.8%, the PSQ (short Nasdaq) rose by 1.8%, while the SPXS (triple levered S&P short) gained 2.9%, DOG (short the Dow) + 0.5%, SH (short the S&P) + 0.9%.

And while the indexes got hammered – they did close well off their intraday lows…..

The Dow down 166 pts or 0.3%, the S&P – 58 pts or 0.8%, the Nasdaq lost 336 pts or 1.4%, the Russell added 8 pts or 0.3%, the Transports + 382 pts or 2% (think eco strength), the Equal Weight S&P – 18 pts or 0.2% while the Mag 7 got smashed – 522 pts or 1.5%. (And you can blame all of them!)

Now here’s what I heard from the media - “Buyers went on strike. There were no buyers — the bottom just fell out.”

And again, I’ll say it — that is patently false. Think about it. There had to be buyers. Every single trade has to have two sides — a buyer and a seller. Period. Otherwise, there isn’t a trade.

So, here is how you should look at it - Buyers stepped back and let the ‘panic’ come to them. And yes — it felt panicky in some names. Sellers (algo’s) were dumping stock aggressively and indiscriminately. And so, the buyers were looking at this mess thinking, “These sellers are out of their minds. Why should I stand here when I can stand over there and buy the same names at much lower prices?” Because THAT is what happened…. Of course there were buyers, they were just being smart!

And here’s the skinny: the algos and the momo crowd don’t ‘think’ they react. They don’t care about valuation, narrative, or price. They react to math — signals, triggers, momentum thresholds — full stop. And you could see it plain as day in the way these stocks traded. Mechanical & relentless. Wave after wave…..typical of algo’s and momo traders.

Now – does the Anthropic news change the game? Maybe. But honestly, what exactly should we think all these AI “things” were being built to do? Save every existing job forever? Come on. Really? Wake up! The game is just beginning.

Bonds stabilized a bit the TLT & TLH up 0.2%. The 10 yr is yielding 4.27% while the 30 yr is yielding 4.9%.

Oil – is also whiplashing…. going from $66.20 - $61.12 to now $63.35….as it looks for its ‘Chi’. There is nothing really new in the story – it just suffered from the schizophrenic behavior in the markets that we have been seeing over the last week.

Gold, silver, and the broader precious-metals complex — which suffered a swift and violent repricing on Friday and Monday — surged on Tuesday…. Gold up $285 or 6%, Silver up $7.90 or 10.3%. The metals & miners ETF – XME gained 5%. This morning Gold is up $100 and is now back above $5000. Silver is up $6 at $89.82. These moves a clear bounce back after the beating they took on Friday and Monday. My sense is, is that it needs a couple of days to find it’s ‘Chi’ as well.

Now look — everything we’re seeing across the markets right now ties right back to the Fed and the growing anxiety around the newly proposed Chair — Kevy Warsh — and how he would clean up – what I call - the mess. The questions - Does he hold rates steady? Does he cut them? And what does he do about the balance sheet?

Ok - Cutting rates is stimulative. Shrinking the balance sheet is tightening. But here’s how to think about it. The FED can do both at the same time and actually remain neutral. Why? Because they work on different parts of the system.

Rate cuts are about the price of money, mortgage rates, borrowing costs, and credit availability. That supports economic activity and keeps the wheels greased. Balance-sheet reduction – known as QT - impacts the quantity of money by draining excess liquidity from the system. And when liquidity comes out, here’s what happens…. Cash in the banking system declines, longer-term yields move up, speculation cools down because there’s less money chasing risk, and the dollar strengthens….and that is key.

Doing both at the same time sends a very clear message — and honestly, we have to ask – How come the current FOMC – with all their PhD’s, MBA’s and Juris Doctorates did not see this?

Look - the goal is to ease financial conditions just enough to keep the economy moving without unleashing another wave of excess liquidity that fuels asset bubbles and speculative behavior — something we’ve been living with for nearly 18 years. So, ask yourself: is that the Kevy Warsh narrative? Rate cuts satisfy the call for lower rates- something Trump has been screaming about - while shrinking the balance sheet pulls liquidity out of the system, does not add to inflation and helps to calm markets rather than inflame them. That’s Econ 301 (not 101) – maybe the current FOMC members never made it to class?

The dollar is holding steady at 97.54 – up off the lows of 95.50 and below the trendines at 98.50.

Bitcoin is trading at $75,880, Ethereum is at $2,250 and Solana is at $96. All at levels that are below what many analysts saw as the bottom!

European markets are mixed…. The UK and France up 1%, Italy up 0.9% while Germany is down 0.2%. Novo Nordisk is getting hammered – down 18% after they released their results – here’s the skinny – sales and profits are in decline, and their ‘exclusivity’ clause is now expired in China, Brazil and Canada.

US Futures are UP! Go figure! Dow +144, S&P +12, Nasdaq +20, Russell +12.

Eco data today includes – ADP Employment for January and is expected to show an increase of 45k new jobs created. We will also get the January ISM Services PMI and that is expected to remain in the expansion zone at 53.5.

We will hear from LLY, ABBV, UBER, QCOM, JCI and BSX along with a host of others. They represent – big pharma, medical devices, chips, Internet media & commercial/residential building equipment.

The S&P closed at 6,917 down 58 pts. This after we traded down to and tested trendline support at 6,860…..something I thought was going to happen on Monday, but it happened on Tuesday. Now yesterday I thought we were going right thru 7000 after we heard from PLTR and xAI….but I did not know about the Anthropic news until the market opened….and that changed everything….this morning – it appears as if investors are calm, but you never know how the algo’s and momo guys will react. Support remains at 6,860 while resistance is at 7,000.

Rigatoni w/chicken and broccoli- Simple, hearty and delicious

You will need Chicken breast – cut into bite sized cubes, broccoli, onion, garlic, olive oil, chicken stock, a splash of cream and grated Parmegiana.

Bring a pot of salted water to a boil.

Toss the cubed chicken with s&p. Set aside.

Sauté some crushed garlic in olive oil in a large sauté pan... when golden – add the chicken and brown. Remove and set aside.

Now add the sliced onion…. sauté that until soft and translucent. Next add the sliced broccoli heads - season with s&p, turn heat to med/med low and cover. Stirring occasionally. Cook for 5 – 8 mins. Season with s&p.

Boil pasta - for about 8 /10 mins or until aldente.

Add the chicken back to the sauté pan and add in a cup of chicken stock and a splash of ½ and ½. Stir to mix.

When the pasta is done - Strain - always keep a mugful of pasta water in reserve. Add the pasta to the pan with the chicken and broccoli. Add back a bit of the pasta water (1/2 ladle). toss and let sit for 2 mins to absorb... now add 2 handfuls of the grated Parmegiana - mix and you are done. Serve immediately in warmed bowls with toasted garlic bread - complement with a nice glass of wine* Always have extra grated cheese on table for your guests.