Markets Waver After Holiday Weekend: AI Volatility, Fed Watch & Key Technical Levels in Focus

Let's get to the big story.

Breakdown as we return from the holiday weekend.

We are keeping a close eye on headlines as well as the major stock averages, and it comes as no surprise that AI is no longer just a tech story and it is hitting every corner of the market from real estate and trucking to wealth management.

Now the S&P 500 is struggling to break the record 7000 mark as investors worry about which industry will be disrupted next.

Well joining me on this.

Tuesday morning is Michael Reinking, senior market strategist for the New York Stock Exchange.

Michael, good morning.

Thank you so much for joining me.

Good Morning, Remy.

Thanks for having me back.

Well, we're here from a long holiday weekend here in the US, and we are keeping a close eye on the headlines.

So briefly, we did see Dow futures hit the flat level.

So what's going on this morning?

Yes, so despite it being Fat Tuesday, it's not such a festive morning in financial markets thus far.

We had futures moving lower.

Overnight, much of Asia is closed for the Lunar New Year, but we saw S&P futures were down a little over 0.5% and we were testing last Friday's lows.

If you look back to last Friday's session, the S&P was closed just above its 100 day moving average, right?

So that's kind of a key level we're watching 68, 12.

We started to come off the lows after this morning's ADPs weekly jobs numbers came in.

Better than expected, improving to 10.25,000, up from 65,000 last week.

So that's a four week average.

That's actually a pretty pretty big improvement.

And then we got headlines from Iran's foreign minister suggesting that a deal in principle had been met with the US, whatever that exactly means is pretty. at this point and we've seen futures kind of further kind of start moving to the upside.

The S&P almost got back to flat as you pointed out the Dow did, and then we saw oil prices moving pretty sharply lower.

We fell about 1 dollar.5 on ice bread to about 67.5, so markets are trying to figure out what's happening.

Yes, and we'll continue to monitor those headlines regarding geopolitics, but you mentioned ADP figures, and last week we did get those non-foreign payrolls figures for that delayed jobs report.

But what are the implications of the latest inflation as well as labor market data?

Yes, so I mean if you look at the totality of last week's data, right, the labor market data improved in January, up 130,000, almost two times the estimate.

We did see pretty big negative. revisions to the previous year, so suggesting that the that the labor market wasn't necessarily quite as strong as we had thought, but it's not that data is not suggesting that we're seeing a very big kind of shift from the low higher low fire environment that we've currently been in.

Then on Friday we got a slightly better than expected inflation report.

Look, I mean.

We're still kind of in this sticky part where that last mile of inflation kind of is harder to get to.

We did see kind of a move lower in the shelter data which has been a tailwind for the labor market data, and we're not seeing we're seeing some mixed numbers in terms of the tariff related sectors kind of within that inflation report, but in totality, the data is like makes.

Sort of difficult for the Federal Reserve to kind of move forward from a labor market perspective, but as we kind of move out throughout the year, if we continue to see that inflation data moving in the right direction, even if we don't see necessarily a significant worsening from the labor market, you could start to see the Federal Reserve begin to lower rates.

Yes, and we will be getting those Fed minutes tomorrow afternoon, so that is something we'll all continue to monitor, but Looking at the calendar this week, it is a holiday shortened week, but we will be getting earnings out from Walmart, and that is something that we'll pay attention to, especially on the heels of that lower retail sales figure we got for the month of December.

So why is it so important and what are you expecting to hear?

Yes, so I mean, as you point out, right, we had a weaker than expected retail sales report in December, so it does kind of shine the light a little bit more on the consumer kind of as we.

Head into this week now the Cagney conference actually began this week, which is the Consumer Analysts Group of New York which began yesterday.

So we're going to start to hear from multiple retailers over the next couple of days.

We'll see if they start to tweak some guidance.

We did see General Mills lower their guidance ahead of the conference that stock is trading a little bit lower this morning.

So the consumer has been such a, such an important part of economic growth here, right?

So we're going to get that update of this week.

And another thing that we've been paying attention to is artificial intelligence.

So we've seen double digit percentage moves when it comes to certain sectors.

But when it comes to AI disruption, what is the key takeaway from this volatility we're seeing? you know, look.

The AI trade has gone from a clear tailwind over the last couple of years and it's kind of now almost turned into kind of a wrecking ball over the last couple of weeks, especially we've seen kind of the increase in capex spending has started to weigh on kind of the mega cap tech names which have really topped out at the end of last year right around Halloween and been moving lower but over the last couple of weeks as we had kind of Claude cowork come out and investors are.

Starting to get more concerned about disruption, it's just made its way from from legal and financial, financial analytics to office property companies to real estate service companies.

It is just making the idea that we're going to see disruption across all of these industries is making its way very quickly around the market.

I mean from my perspective, a lot of that does seem a little bit overdone.

In the short term, but what kind of what you are doing is kind of just rethinking the longer term prospects for a lot of these companies, right, especially when you think about something like software where you're wondering, does that business model, the business model that has been so resilient over the last decade, is that going to be able to continue and you're starting to see people adjust multiples as there is kind of more uncertainty.

And finally, before I let you go, we have about 60 seconds here, but we are looking at the tenure hovering right around the 4.04% level, and I know that you're keeping an eye on levels.

So what does this tell you right now?

So we have Treasury yields are kind of testing the lowest levels that we've seen since kind of October of last year as markets have kind of priced in the first rate cut in the middle of the year, as you kind of pointed out, we're kind of hovering between 2 and 3% per year. from a market perspective we've seen that broadening or the equity market perspective we've seen the broadening of largely happening which has kind of helped the S&P 500 largely kind of hover around unchanged.

We just turned with Friday itself we just turned negative year to date just slightly.

We're sitting right above 6812, which is the 100 day moving average.

The other thing I would kind of pay attention to is that this week is.

Options exploration, right, so we do tend to, we can see kind of volatility pick up in these sorts of events if we start to move to the downside.

I wouldn't be surprised if we see some more hedging activity kind of start to move into the market.

We've seen an unwind of some of the some of the more speculative momentum-based trades.

We're also seeing metals prices moving pretty sharply lower overnight.

So I think that's something to pay attention to this kind of options exploration.

And the positioning, you know, dealer positioning around that potentially adding to some of the downside this week.

Well, Michael, a lot to keep our eyes on as we head into the week.

So thank you so much for joining us this morning and thank you for all of your insights.

Thanks for having me.