The Week Ahead

Macro Movers

The February Payrolls data, along with the revisions, provided the first piece of quantitative evidence to support the argument that January was an outlier for higher inflation. Although I have recently been critical of the data quality, the significance and influence of the report cannot be understated. Therefore, this report suggests a more constructive outlook on inflation and yields is appropriate as we navigate March.

CPI: Core metrics will be the focus. Month-over-month, the forecast is for 0.3%, a slight deceleration from the prior month’s 0.4%. Year-over-year, consensus is 3.7%, down from 3.9%. Lower is better for stocks.

PPI: This measures inflation at the producer level, and it often serves as a predictor for consumer inflation, which is the target of the Fed’s 2% mandate. The softer the read here, the softer investors can expect consumer inflation to be moving forward. The consensus forecast for core is 0.2% on a monthly basis.

Micro Movers

Oracle (ORCL) & Adobe (ADBE): These two perceived AI-beneficiaries report this week. Both are rubbing up against their 200d SMAs, suggesting added volatility. ORCL will need to demonstrate stronger cloud performance, while ADBE must address competitive concerns surrounding SORA.

Dollar Tree (DLTR) & Dollar General (DG): ): I don’t closely follow either company because neither stands out fundamentally. However, these stocks tend to catch Wall Street’s fancy whenever discussions about an economic slowdown or recession gain traction. Nevertheless, it’ll be intriguing to see what insights these convenience chains offer about consumer behaviors.

Toppy Behavior

Some of you may have noticed Friday’s heavy tape despite benign Payrolls. Nvidia ended the day down 5% after initially being up by as much as 5% — a 10% swing. Although Crowdstrike popped 30% after reporting the best quarter in cybersecurity, the stock ended the week only up a modest 2%.

Stocks reacting tepidly or negatively to bullish catalysts is an example of “toppy behavior”.  I attribute much of Friday’s volatility to prices hitting limit orders set at crowded, higher levels. From there, selling begets selling: the decline attracts the attention of others who follow suit.

However, such behavior isn’t necessarily the start of a broader sell-off. In fact, Friday proved to be a good day for the “broadening out” thesis. Funds raised by the selling appear to have been redirected to underloved stocks. For instance, Apple and Google, which had been experiencing weeks of softness, managed to gain around 1% on Friday in a down-tape.