February 21st Market Overview

Happy Friday.

Pretty nasty red day headed into thew weekend. Markets are down and the VIX is spiking. I think inflation fears are starting to hit the markets a bit after we are starting to see real world data following all the tariff talk. The markets can only shake off the uncertainty for so long. This is what markets do and it’s health price action imo.

When I’m looking for big warning signs I’m looking for massive institutional selling into the afternoons session volume - I never saw much of that this week.

NVDA earnings are Wednesday 02/26/2025 after market close (my bad yesterday).

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Let's dig in...

Executive Summary

• Markets recorded their worst decline of 2025, with the Dow falling 764 points as all major indices headed for sizable weekly losses

• Warning signs flash as Services PMI unexpectedly dropped to contractionary 49.7, suggesting economic growth is stalling
  

• Inflation fears have spiked with consumer expectations jumping to 4.3% amid widespread tariff concerns, highest since November 2023
  

• Wall Street's defensive rotation accelerated with consumer staples surging as investors fled growth stocks and sought safer assets
  

Market Overview

Key Market Drivers

1. Severe Consumer Sentiment Decline: The University of Michigan’s consumer sentiment index fell to 64.7 in February, down 10% from January’s 71.7 and below economist expectations.
   

2. Inflation Fears Resurface: Consumer inflation expectations for the year ahead jumped from 3.3% to 4.3%. The five-year inflation outlook reached 3.5%, highest since April 1995.
   

3. Economic Activity Approaching Stagnation: S&P Global Services PMI dropped to 49.7 in February, marking a 25-month low. This suggests the economy may be growing at just 0.6% annually, down from earlier projections of 2%.
   

4. Tariff Uncertainty Weighing on Markets: Trump’s proposed tariffs continue creating uncertainty for retailers and consumers, with $WMT explicitly citing tariff concerns in their outlook.
   

Stock Spotlight

• UnitedHealth Group ($UNH): ▼ 7.20% to $466.26 on Department of Justice civil fraud investigation examining how the company records diagnoses that boost Medicare payments.

• Celsius Holdings ($CELH): ▲ 27.52% to $32.56 after announcing $1.8 billion acquisition of Alani Nutrition, expected to close in Q2 2025.

• Block ($XYZ): ▼ 17.12% to $68.82 after missing Q4 expectations with adjusted earnings of $0.71 per share (vs. expected $0.87) and revenue of $6.03 billion (vs. expected $6.29 billion).

• Hims & Hers Health ($HIMS): ▼ 24.44% to $50.18 after FDA announced resolution of semaglutide (Ozempic and Wegovy) shortages, ending the company’s advantage in selling compounded versions.

Big Name Updates

Novo Nordisk ($NVO): ▲ 5.42% to $88.28 after FDA resolved shortages of Wegovy and Ozempic weight-loss drugs.

Coinbase ($COIN): ▲ 3% after SEC staff agreed to dismiss their lawsuit, pending Commission approval. CEO Brian Armstrong called the case “bogus,” expressing optimism about crypto regulation under the Trump administration.

Walmart ($WMT): Continued to pressure markets for a second day after their cautious 2025 outlook citing tariff uncertainty.

Other Notable Company News

Consumer staples outperformed as investors sought safety: Conagra ▲ 4.7%, Campbell’s ▲ 4%, Mondelez ▲ 3.2%, Kraft Heinz ▲ 2.8%, Keurig Dr Pepper ▲ 2.6%, General Mills ▲ 2.5%, PepsiCo ▲ 3.3%, and Coca-Cola ▲ 2.1%.

The materials sector dropped 1.8%, now 10% below its October high. Freeport-McMoRan and Newmont Corporation were the biggest laggards, falling about 5% each.

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Sector Watch

Bond Market

Treasury yields retreated as investors fled to safety:

• 10-year yield: Down 7.9 basis points to 4.42%

• VIX volatility index: Up 19.35% to 18.69

• Fed rate cut expectations accelerated:

• 55% probability of 2-3 cuts by year-end (to 3.50%-3.75%)

• Up from 44% probability just yesterday

• 50% odds of 50-75 basis points in cuts by October

• Significant increase from 38% probability on Thursday

Policy Watch

Trump tariff uncertainty continues pressuring markets:

• Michigan survey directly linked tariffs to inflation fears

• Creating planning challenges for businesses

• Weighing heavily on consumer sentiment

Notable market warnings:

• Billionaire Steve Cohen: "It's definitely a period where the best gains have been had"

• Predicted "significant correction" ahead

• Cited tariffs and budget cuts as primary economic threats

Regulatory shifts:

• Crypto sector brightened as SEC moved to dismiss Coinbase lawsuit

• Signals more favorable regulatory environment under new administration

What to Watch

1. Trump Trade Policy Developments: Monitor weekend announcements on tariff specifics and implementation timelines.

   • Specific tariff rates and targeted industries

   • Potential retaliation from trading partners

   • Corporate guidance updates citing tariff concerns
     

2. Federal Reserve Response: With shifting economic data and inflation expectations, the Fed’s reaction will be crucial.

   • Fed officials’ comments on recent economic data

   • Signals about rate cut timing, potentially moving forward

   • Changes in market-based rate cut probabilities
     

3. Consumer Health Indicators: Next week’s spending and confidence reports will show whether sentiment drops affect actual spending.

   • PCE data providing insight into January spending

   • Retail sales updates signaling consumer behavior

   • Discount retailer performance for early signs of trading down
     

4. Defensive Rotation Sustainability: The flight to defensive sectors may signal deeper market concerns.

   • Fund flows into consumer staples, utilities, and healthcare

   • Value vs. growth performance

   • Whether this rotation is temporary or beginning of a longer trend