Markets Overview

  • ASX SPI 200 futures up 0.3% to 8,463.00
  • Dow Average up 0.3% to 44,451.81
  • Aussie up 0.1% to 0.6281 per US$
  • US 10-year yield little changed at 4.4927%
  • Australia 3-year bond yield rose 3.9 bps to 3.82%
  • Australia 10-year bond yield rose 4.4 bps to 4.40%
  • Gold spot up 1.5% to $2,904.33
  • Brent futures up 1.8% to $76.04/bbl

Economic Events

  • 10:30: (AU) Feb. Westpac Consumer Conf SA MoM, prior -0.7%
  • 10:30: (AU) Feb. Westpac Consumer Conf Index, prior 92.1
  • 11:30: (AU) Jan. NAB Business Conditions, prior 6
  • 11:30: (AU) Jan. NAB Business Confidence, prior -2

 

Stocks kicked off the week with gains, rebounding after a slide driven by concerns over inflation and US tariff threats. The dollar strengthened and gold hit a record high.

The advance in equities was led by the market’s most-influential group – technology – with the Nasdaq 100 up over 1% Monday. Nvidia Corp. extended a five-day surge to 15% while Meta Platforms Inc. rose for a 16th consecutive session. Materials producers were also on the spotlight amid President Donald Trump’s plans to impose 25% tariffs on all US imports of steel and aluminum. United States Steel Corp. and Alcoa Corp. climbed at least 2.5%.

Trump said Sunday the steel and aluminum tariffs would apply to shipments from all countries, including major suppliers Mexico and Canada. He didn’t specify when the duties would take effect. The president also said he would announce reciprocal tariffs this week on countries that tax US imports.

Aside from the global trade picture, investors will also be focused on this week’s key inflation data and Federal Reserve Chair Jerome Powell’s testimony before Congress. Expected inflation rates over the next year and three years ahead were both unchanged in January at 3%, according to results of the New York Fed’s Survey of Consumer Expectations published Monday.

“Inflation data, Powell’s congressional testimony, and tariffs are poised to drive the market story,” said Chris Larkin at E*Trade from Morgan Stanley. “If the S&P 500 is going to break out of its two-month consolidation, it may need a respite from the types of negative surprises — like DeepSeek, tariffs, and consumer sentiment — that have tripped it up over the past few weeks.”

Hedge funds emerged as big buyers of US stocks last week, shifting away from a previously bearish stance in the wake of stronger-than-expected earnings reports. They snapped up US equities at the fastest pace since November, resulting in the heaviest net buying of single stocks in more than three years, according to Goldman Sachs Group Inc.’s prime brokerage report for the week ended on Feb. 7. The activity was heaviest in the information technology sector.

The S&P 500 rose 0.7%. The Nasdaq 100 climbed 1.3%. The Dow Jones Industrial Average added 0.3%. The Bloomberg Magnificent Seven Total Return Index advanced 0.7%. The Russell 2000 Index gained 0.5%.

The yield on 10-year Treasuries was little changed at 4.5%. The Bloomberg Dollar Spot Index rose 0.2%. Gold topped $2,900 an ounce.

To Jose Torres at Interactive Brokers, many investors are starting to realize that much of the tariff talk is hardly going to come to fruition, with the rhetoric increasingly appearing to be a negotiation tactic.

“The posturing is intended to benefit domestic economic conditions rather than disrupt global commerce momentum, and the outcomes are likely to be much better than feared,” he said. “For this reason, traders are stepping up to the plate today and scooping up stocks.”

“In the Old Testament, even God rested on the seventh day!” said Bespoke Investment Group strategists. “Since the Inauguration, though, whether you love or hate him, we can all agree that President Trump’s second term has started with a nonstop fire hose of news and headlines.”

Despite the jitters around the news flow, one metric shhows the market has actually been surprisingly calm.

Over the last 100 trading days, the roughly $630 billion exchange-traded fund tracking the S&P 500 (SPY) has traded in a relatively narrow range of less than 10%, according to Bespoke. While that may sound like a wide range, it ranks in just the 13th percentile of all comparable periods dating back to SPY’s inception in 1993. Back in Covid, this reading spiked above 50% and during the Financial Crisis, it widened even more, peaking above 75%.

“Investors may be better served by not reacting to the news cycle,” said Anthony Saglimbene at Ameriprise. “Stand still and let tariff, Big Tech, and interest-rate developments play out over the near term. Making investment decisions on still unknown outcomes increases the risk of being wrong or offside if developments shift in the opposite direction.”

“Despite day-to-day confusion, tariff uncertainty, the geopolitical environment, and elevated valuations in the tech space remain the biggest unknowns for investors,” said Mark Hackett at Nationwide. “Together, these factors point to measured gains this year rather than blockbuster returns of recent years.”

By one barometer, investors’ expectations for the stock market have never been this high at the start of a presidential term. The cyclically-adjusted price-to-earnings ratio, more commonly known as the CAPE ratio, stood at nearly 38 in late January, an “extremely high” level, according to Charlie Bilello at Creative Planning.

Positioning tells a similar story. The US equity risk premium (ERP) — a measure of the differential between the expected returns of stocks and bonds — is deep into negative territory, something that hasn’t happened since the early 2000s. Whether that’s a negative indicator for share prices depends on the economic cycle. A lower number can be seen as indicating that corporate profits are going to rise. Or it could mean that stocks are climbing too rapidly and are far above their actual value.

“Although multiples are elevated, we remain fully invested due to the potential for continued economic growth, moderating inflation and an accommodative Fed,” said Richard Saperstein at Treasury Partners. “Our characterization for stocks this year is a choppy market that trends higher over the year.”

Callie Cox at Ritholtz Wealth Management says high expectations, elevated rates and policy uncertainty “don’t mix well together.”

“We’re learning that in real time,” Cox said. “Strive for portfolio balance, and remember that there’s a world outside of AI.”