Wall Street Breakfast: What Moved Markets

Stocks fell Friday to end the week in the negative following a second inflation report that sparked concerns the Federal Reserve may cut interest rates later rather than sooner. The January producer price index released Friday rose by a larger than expected 0.3%, while core PPI excluding food and energy prices jumped 0.5%. The 10-year Treasury yield spiked above 4.3% following the hot PPI reading, and the two-year Treasury yield topped 4.7% to its highest level so far this year. Earlier in the week, the consumer price index climbed by a larger than forecast 3.1%. The CPI and PPI reports have led to markets sharply recalibrating their expectations of interest rate cuts this week. According to the CME FedWatch tool, the odds of a 25 basis point rate cut by the Fed in March is now at 11%, versus 16% a week ago and a whopping 63% a month ago. All three major stock market indexes broke their five-week winning streaks, with the S&P 500 closing down 0.4%, the Dow Jones tipped 0.1% lower, and the Nasdaq Composite slid 1.3%. Read a preview of next week’s major stock market events in Seeking Alpha’s Catalyst Watch.

Permian pursuit

Further consolidation came to the energy sector as Diamondback Energy (FANG) and Endeavor Energy Resources finalized a merger to create an oil-and-gas behemoth worth more than $50B. The deal, announced early on Monday, will combine two rivals in the Permian Basin, where M&A activity has been on fire. Many have been scrambling to scoop up top-tier drilling acreage in the area that extends from West Texas to New Mexico, which has helped propel American oil production to record levels. Jumpstarting the trend, Exxon Mobil (XOM) agreed to acquire Pioneer Natural (PXD) for $60B last October. It was followed by Chevron’s (CVX) $53B deal for Hess (HES), Occidental’s (OXY) $12B pact for CrownRock, and APA’s (APA) $4.5B agreement for Callon Petroleum (CPE). (9 comments)

13F season

Some hedge funds reshuffled their positions in big tech players and chipmakers in the latest quarter amid an AI-fueled rally that pushed stocks to new highs. Warren Buffett’s Berkshire Hathaway (BRK.B) pulled back on its top tech positions, while “Big Short” investor Michael Burry bet on this Chinese e-commerce giant. Meanwhile, 3G Capital and Stan Druckenmiller both dumped Alphabet (GOOG, GOOGL), Tiger Global pared its stakes in several big tech stocks, and Ray Dalio’s Bridgewater scooped up fresh positions in Apple (AAPL) and Oracle (ORCL). Take a look at SA analyst John Vincent’s rundown of major 13F filings.

New milestones

Just two days after inking the No. 4 spot, Nvidia (NVDA) surpassed Google parent Alphabet’s (GOOG, GOOGL) market cap on Wednesday to become the third largest U.S. company, ahead of its much-awaited Q4 earnings report next week. The AI chip-making powerhouse – which is also betting on other AI-related companies – has been on an absolute tear, with its stock more than tripling in value over the past 12 months. Meanwhile, bitcoin (BTC-USD) on Tuesday topped the $50K level for the first time since late 202, as spot BTC ETFs continue to attract investment after their historic approval. “Bitcoin has upside potential due to the upcoming halving cycle and strong fundamentals,” noted SA Investing Group Leader James Foord. (58 comments)

Spending signs

After months of consumer spending surprising to the upside, is the consumer ready to take a break? Retail sales fell 0.8% M/M to $700.3B in January, more than the 0.1% decline expected and a turnaround from December’s 0.4% M/M increase, in a development attributed to seasonal issues and a holiday hangover. U.S. stocks still ended higher on Thursday, with traders shrugging off the new data, as well as the hot CPI report earlier this week. The data “shows that retail sales, not seasonally adjusted, were up 2% Y/Y, and with inflation adjustments, were up by more,” said SA analyst Wolf Richter. “So for now, I’m not worried about our consumers.” (85 comments)

Winning the race

Automakers have been debating the industry’s future for years, with the starting point just as confusing as the finish line. “If there are ways we can partner with others and be more efficient with R&D as well as capital, we’re all in,” GM CEO Mary Barra said at an industry event this week. “If you can’t compete fair and square with the Chinese, 20%-30% of your revenue is at risk,” Ford (F) CEO Jim Farley warned, adding that the firm may look into battery tie-ups “with another OEM [automaker].” The two auto giants and the industry have been feeling serious heat from Chinese EV makers, particularly Berkshire-backed BYD (OTCPK:BYDDY), which topped Tesla (TSLA) in sales last year. (20 comments)

Notable Ratings From SA Analysts

Weekly Movement

U.S. Indices

Dow -0.1% to 38,628. S&P 500 -0.4% to 5,006. Nasdaq -1.3% to 15,776. Russell 2000 +1.1% to 2,032. CBOE Volatility Index +10.1% to 14.24.

S&P 500 Sectors

Consumer Staples +0.2%. Utilities +1.4%. Financials +1.4%. Telecom -1.6%. Healthcare +1%. Industrials +0.9%. Information Technology -2.5%. Materials +2.4%. Energy +2.2%. Consumer Discretionary -0.8%. Real Estate -0.2%.

World Indices

London +1.8% to 7,712. France +1.6% to 7,768. Germany +1.1% to 17,117. Japan +4.3% to 38,487. China flat at 2,866. Hong Kong +3.8% to 16,340. India +1.2% to 72,427.

Commodities and Bonds

Crude Oil WTI +3.1% to $79.22/bbl. Gold -0.7% to $2,025.5/oz. Natural Gas -13.2% to 1.603. Ten-Year Bond Yield -0.2 bps to 4.281.

Forex and Cryptos

EUR/USD -0.05%. USD/JPY +0.59%. GBP/USD -0.14%. Bitcoin +8.8%. Litecoin -0.7%. Ethereum +11.8%. XRP +7.7%.

Top S&P 500 Gainers

Diamondback Energy (FANG) +18%. Trimble (TRMB) +15%. Viatris (VTRS) +12%. Targa Resources (TRGP) +11%. DaVita (DVA) +11%.

Top S&P 500 Losers

Akamai Technologies (AKAM) -15%. Adobe (ADBE) -13%. West Pharmaceutical Services (WST) -12%. Biogen (BIIB) -9%. MGM Resorts International (MGM) -9%.

Where will the markets be headed next week? Current trends and ideas? Add your thoughts to the comments section.