S&P 500, Nasdaq 100 slide as risk-off sentiment deepens

WHERE WE STAND – ‘More of the same’ was very much the vibe yesterday as the fresh trading week got underway, with no sign of the recent de-risking, and haven demand, subsiding.

Though catalysts were somewhat light, amid the barren data docket, there was little in the news flow to discourage participants from trimming exposure to riskier assets further, as return of capital continues to take precedence over return on capital, amid continued concerns over the US economy losing momentum, and policy uncertainty remains highly elevated. As such, the S&P 500 fell 2.7%, closing below the 200-day MA for the first time in 18 months, while the Nasdaq 100 notched its biggest one-day loss since September 2022.

I think it’s pretty clear, at this stage, that the idea of a ‘Trump put’ is stone dead – or, at least, that the strike price of said put is much, much lower than had previously been envisaged. Trump’s weekend refusal to rule out a recession this year is just the latest evidence of this, coupled with both Treasury Secretary Bessent, and Commerce Secretary Lutnick, having both ‘rolled the pitch’ for a slowdown in recent weeks.

The Admin are, for now, doubling down on the idea of ‘short term pain, for long term gain’, in the hope that macro headwinds can be blamed on the Biden Admin, and that Trump & Co will be able to claim credit for the economic, and market, turnaround that would likely follow. While I see how this might be politically expedient, juicing the economy just in time for the midterms, it’s rather economically incoherent, particularly for an Oval Office which claims to be more focused on Main Street, than on Wall Street.

To be clear, if Trump & Co are able to cut federal waste, decrease the size of the government, and juice the private sector, as much as they are touting, then it gives me confidence that the long-run path of least resistance should continue to lead to the upside on Wall St. However, in the short-term, it remains difficult to advocate buying dips, with the bear case holding more weight for me, as growth expectations continue to slide, dragging earnings expectations lower alongside, all the while policy uncertainty clouds the outlook, and as a ‘Fed put’ remains about as elusive as one from the White House.

Unsurprisingly, the continued soft sentiment rewarded Treasury bulls, with benchmarks advancing across the curve, led by the belly. I continue to see the risk/reward favouring longs here, particularly as downside growth risks mount, and the balance of risks leans even further towards a more dovish FOMC, than a more hawkish one.

This, in turn, continued to put pressure on the greenback, which softened against most major peers, with a broader flight away from USD-denominated assets also having a role to play here. The EUR, though, did have a bit of a wobble on news that Germany’s Greens shan’t support the draft defence spending package in their current form, though the party leader’s language clearly left room for a deal to be done.

In the truest of EU traditions, things are likely to be fudged here, and spending unlocked, albeit likely via a more difficult and elongated process than previously thought. Anyway, I’m still confident in my bullish EUR call.

LOOK AHEAD – A rather sparse data docket ahead, in keeping with the general theme of the week.

The only notable release comes Stateside, with the January’s JOLTS job openings data, where vacancies are seen rising to 7.63mln, from 7.60mln prior. As has been the vibe with US figures for some time now, the market shan’t be in any mood to forgive a soft print, which will only serve to exacerbate existing nervousness over waning economic momentum.

Meanwhile, a 3-year US auction kicks off a busy week of supply later on, ahead of a 10-year sale on Wednesday, and 30-year sale on Thursday, all of which you’d expect to be relatively well-received.

Lastly, with the FOMC now in the pre-meeting ‘blackout’ period (hallelujah!), today’s only notable central bank speaker shall be the ECB’s Rehn.