Dow 50,000 Highlights Market Rotation as Investors Reassess Growth and Rates

Remy:Well, joining me as we kick off today's trading session is Michael Reinking, senior market strategist at the New York Stock Exchange. Michael good morning. Thank you so much for joining me.

Michael: Morning,Remy. Thanks for having me back.

Remy: Well, of course, we're watching technical levels for the major equity averages, including the Dow and the S&P 500. But there's been a lot of volatility under the surface. So what do you make of the milestone for the Dow.

Michael: Yeah I mean, it's a very positive milestone. And as you know it was an exciting day down here. You saw the Dow 50,000 hats making their way around. You know as you pointed out..

That's really kind of this idea of kind of the great rotation right there was, you know, kind of some movement, you know, kind of last week into kind of up the quality scale. Right. We had seen some kind of really interesting kind of crosscurrents within the market. You know, you had kind of software and tech under pretty significant pressure during the week, which came in response, you know, to just in the kind of the end of the prior week, you had this big unwind in kind of the metals complex, right?

So what happened is you started to see kind of this, this kind of rolling unwind of kind of crowded positioning. Um, right. And, and, uh, kind of along with kind of the, the update to the cloud model, which can kind of raise some more questions about the viability of software going forward. And then you saw that kind of continue to move into kind of more cyclical areas of the market and some of your kind of more defensive areas as well And then on Friday, you know, you had this kind of week where, you know, kind of the mood was kind of somber, despite, you know, kind of some, you know, kind of the, the general indices holding up pretty well. And then we had this massive snapback rally on Friday, which, you know, kind of pushed pretty much everything except for the S&P 500 to new all time highs.

Remy: So as we continue to monitor the major equity averages, we're also watching other asset classes as well, including precious metals, as you mentioned, and the bond market. But last week there was a new term added to our lexicon, and that was SaaS apocalypse. And it's very interesting to see what Alphabet is doing in terms of bond sales. So what does that tell you?

Michael: Yeah. So I mean they're a little bit different, right? I mean, so in terms of SaaS apocalypse. Right. And that goes back to this kind of the update to the cloud coworker model, right? And with some of the plug ins for financial for the financial industry and the legal industry. Right. And just really starting to raise questions about the viability of those subscription based models on a go forward basis. Right. Yeah, there's been software has been underperforming for some kind of period of time, which we've talked about, you know, the slowdown in hiring, right. You know, kind of just reduced this headcount. Right.

So that kind of weighs on revenues. But then there's also kind of the the idea of vibe coding and people being in companies being able to kind of reproduce software in-house. You know, that's really kind of starting to weigh on kind of the expectations for the longer term in these companies. Right? These companies do tend to trade at pretty high multiples So you're seeing some multiple compression. And then in terms of Google right. The other or Alphabet. Right. Well we've also seen kind of over the last week or so is that you've seen kind of companies coming to market to raise capital, to continue to finance, you know, this astronomical amount of, you know, kind of CapEx spending to to fund, you know, kind of this AI. Trade. Right. Alphabet you know, kind of is one of the most. You know, kind of best positioned at this point, you know, kind of where they're. Even though they kind of significantly increase their CapEx numbers. Right. They're still kind of running with, you know, kind of positive free cash flow. We've started to see some of those other mega-caps, you know, kind of. Kind of cross over that. You know, kind of cross over that threshold, which is kind of been a little more concerning. But as you know, kind of they start to raise capital if we see OpenAI able to kind of finish. You know, kind of this financing round that they've been talking about. Right. What that does is kind of just take some of the heat off in the near term. In terms of the idea that this, you know, that the spending is going to stop, you know, kind of very quickly.

Remy: Yeah. This is an area we'll continue to monitor. But you also touched upon the labor market. And tomorrow morning we will be getting that jobs report, which was delayed because of that short partial government shutdown we had last week. But what are your expectations for that jobs number tomorrow morning.

Michael: Yeah. So I mean it's pretty interesting. So we started we've started to see kind of rates markets moving a bit lower over the last week. So last week you know we got the challenge of job cuts, initial jobs claims. There was one other and the ADP numbers, which were all a little bit weaker. So it's kind of trifecta of kind of weak labor market data. Yesterday we heard Kevin Hassett, you know, kind of also suggest that the hiring, you know, that we could see some, some weaker labor market data as we move forward. So you've started to see kind of the rates markets move a little bit lower. Right? I would say like from a probability perspective, right. In April we're looking at now about a 40% chance of a rate cut, which is up from like around 20% at, you know, kind of about a week ago. Right. So you're seeing that creep into markets a little bit. You know, this morning we also had a weak retail sales number. Right. You know and that's a December number, you know, came in flat versus an expectation above 0.4%. You
know, so, you know, kind of raising some additional questions about kind of the overarching kind of economic backdrop.

Remy: And Michael, finally, before I let you go, big picture, 2026, as we all know, is a midterm election year. But there are also expectations of stimulus coming down the pike. So what does this mean for economic growth and also for the Fed outlook for the rest of this year?

Michael: Yes, I mean that's kind of one of the big kind of thematics, you know, kind of overarching for kind of 2026. Right. You do have kind of midterm election years, which historically are, you know, kind of within the four year presidential cycle, the worst of the four year presidential cycle with an average and mean return profile since 1970. Of about 1%. Right. And only up about half of the time. But, you know, that doesn't necessarily mean that we can't have a positive year. And if you look at the at the backdrop of what has made everybody pretty positive about 2026 is that, you know, we're expecting to see kind of an increase in, you know, kind of, you know, kind of tax refunds this year.

You know, kind of the the other policies put in place by the administration in terms of kind of tax policy related to kind of CapEx spending for companies, right. These are all expected to be tailwinds from the economic backdrop. Right. And which is why you're seeing kind of some of that rotation, right, as that, you know, it's expected to help earnings profile for kind of those more cyclical areas of the market.

At the same time that we're having this kind of the discussion about the free cash flow at these kind of hyperscalers, you know, kind of starting to contract, right. So you have kind of, you know, both sides, you know, that that gap is narrowing between the growth rates between both sides of that equation.

Right. And you know, there's with the expectation that you have a, you know, kind of the the economy improve in 2026. Right. That has kind of pushed out expectations, you know, for kind of the Federal Reserve to begin, you know, kind of rates cutting rates until kind of the middle of the year, you know. But now we do have kind of, you know, kind of the Kevin Warsh nomination, right And, you know, kind of he's kind of, you know, come out despite being kind of a little more hawkish historically, he's come out with kind of a dovish policy stance, at least for monetary policy, not necessarily on the balance.

Remy: Well Michael, there are a lot of moving parts here. So thank you so much for simplifying it. And as always thank you so much for all of your insights. Thank you.

Michael: Thanks for having me.