Welcome to this edition of our newsletter, covering key market movements and insights from the past week. With a mix of geopolitical drama, economic slowdowns, and shifting investor sentiment, there’s plenty to unpack.

Since last week’s option expiry, there’s been a notable shift. High-beta and high-momentum stocks, particularly retail favorites like Palantir ($PLTR) and Carvana ($CVNA), have seen significant declines. These names, which benefited from repeated retail buying, are now facing a sharp correction, with the MTUM ETF down 7% over the past 10 days, though still up 72% since October-November 2023.

Sector Performance & Market Rotation

• U.S. Markets: The S&P 500 is up 1.2% year-to-date, while the NASDAQ is down 2.4%.
• European Markets: Outperforming the U.S., with the Euro Stoxx 50 up 11.6% and the Stoxx 600 up 10% YTD. European banks are leading the charge, surging 20-30%.
• Crypto & Commodities: Bitcoin suffered but bounced back from $76K to $85K. Gold also had a rough week, dropping 3% from $2,950 to $2,850.
• Semiconductors: Down ~7% on the week, largely due to Nvidia’s ($NVDA) disappointing price action despite strong earnings.
• Bonds & Interest Rates: Bond yields have declined significantly, with the 10-year yield falling 36 basis points YTD. The Trump administration appears keen to drive yields lower to stimulate housing and economic activity.

WTD Assets Performances.

Macroeconomic Signals: Growth Concerns Rising?

• The U.S. economy is showing signs of slowing, with growth expectations for Q1 dropping into negative territory on Friday.

Atlanta Fed GDP Expectations for Q1.

• The Federal Reserve’s rate expectations have shifted dramatically. At the start of the year, the Fed Funds rate was projected at 3.9% by year-end, but now markets are pricing in a much lower 3.67%, implying significant rate cuts ahead.

Fed Funds Rates.

Key Events to Watch This Week

• PMI & ISM Manufacturing (Monday) and Services (Wednesday): Recent data suggests services are weakening, so these reports will be crucial.
• NFP Jobs Report (Friday): A notoriously volatile number, with a potential margin of error of 50K-150K jobs. Expect market turbulence.
• State of the Union (Tuesday-Wednesday): Trump’s rhetoric on Ukraine, tariffs, and economic policy will be closely watched.
• Federal Reserve Commentary (Friday): Expect more insights on monetary policy direction.

Stock Spotlight: Costco ($COST)

Costco reports earnings this week. Like Walmart, it has seen a massive re-rating, with P/E ratios jumping from 20-25x earnings to 40-45x. Despite solid 5-10% revenue growth, it’s unclear if this valuation can be sustained. Investors should watch whether momentum in retail stocks continues.

Costco P/E

Final Thoughts & Strategy

• Market Sentiment: While short-term corrections are underway, the broader bullish trend remains intact unless technical levels break.
• Hedging Strategies: Put spreads remain a viable option to hedge portfolios.
• Europe vs. U.S. Divergence: European stocks have outperformed significantly; some investors might look to rotate back into U.S. names.

For those interested in refining their trading process, check out our 4×4 video series, mentoring sessions, and trading community on Discord.

To join us on Discord: https://discord.com/invite/Yf42SgAx7f

Email me at greg@duponttrading.com for inquiries.

Have a good Trading Week!

Greg