Correction territory

Paid subscriber analysis

We said last time that this week was going to bring a resolution, sending markets either up or down sharply. The latter happened.

Despite NVDA having a stellar earnings report on Wed, its stock got punished severely the next day (going down 8% on the day), along with the rest of the market. SPX ended the day at -1.6%, wrapping up a 1.2% decline during February. NDX fared even worse last month, closing at -3.7%. NDX is negative, while SPX is slightly up YTD (the end of month rebalancing in the final hour of Friday pushed it up by 1.5%). Most asset classes are negative YTD, including crypto which had a tough week.

The two best performing assets this year? Gold (up 7.4%), and bonds (up 5.5%). That, my dear readers, is a recession trade. More on that below.

This is NOT YET the full correction we have been waiting for, but we are now in that territory. Meaning that the sell-off could very well extend itself into March. Just like we said last time; we are in a window of weakness right now that will last until March options expiry. It’s not impossible that we see a sharper market sell-off in this period. To repeat our conclusion from last week:

…you don’t have the jump the gun here. The moves could extend well into March (with a few pullbacks certainly, but the trend will be strong).

There was plenty of time to react to this one.

The combination of Trump’s frequent market surprises (tariff announcements, geopolitical shocks, etc.) and a traditionally week period for markets (less supportive flows) is the main reason behind such a bearish assessment. Recall that in the past few years (2020, 2022, 2023) the biggest market shocks happened exactly in this time period. This is no coincidence.

And then there’s this:

The Atlanta Fed’s GDPNow forecast has rapidly shifted its current GDP estimate, from 3% last month, to 2.4% last week, to -1.5% today! This is the first major recessionary sign and can very well explain the gold and bond trades.