Market Mayhem: A Week of Wild Swings and Flight to Safety
The week from February 10 to February 14, 2025, felt less like a routine trading session and more like a high-stakes roller coaster ride—complete with loop-de-loops and a sudden urge to hightail it to the safety of bonds and gold. Let’s break down the chaos with a healthy dose of sarcasm and a dash of hard-hitting data.
A Volatile Trading Environment
Despite investors’ best efforts to act rationally, the markets couldn’t help but indulge in some theatrical volatility. During this period, major U.S. indices experienced wild swings, with intraday moves that left even the most seasoned traders questioning their life choices. One might think that the inflationary backdrop would have prompted a more cautious approach—but apparently; the thrill of the chase was too irresistible.
Inflation’s Unwanted Encore
Just when traders thought they’d seen it all, the latest Consumer Price Index (CPI) report arrived, revealing notable price increases in both the service sector and food. With service prices rising and food costs following suit, inflation reared its head in a way reminiscent of an uninvited party guest who just won’t leave. The report pushed the annual inflation rate to levels reminiscent of past periods of economic unease, yet the market continued its wild ride as if to say, “Who needs stability when you have adrenaline?”
The Retail Sales Letdown
As if inflation wasn’t enough to dampen spirits, the latest retail sales figures provided an additional punch. Weaker-than-expected retail data—down nearly 0.9%—underscored a growing reluctance among consumers to open their wallets. While some sectors, like dining, managed a modest uptick, the overall picture was decidedly gloomy. The underwhelming retail performance didn’t just serve as a red flag; it practically waved a neon sign announcing, “Caution ahead!”
GDPNow: Lowering Expectations
The Atlanta Fed’s GDPNow model also chimed in with its sobering message. In a move that could only be described as “sustainably disappointing,” the model trimmed its projection for first-quarter GDP growth from an optimistic 2.9% down to a more modest 2.3%. This downward revision hinted at a slowing economic engine, leaving investors to wonder if they’d accidentally stumbled into a prolonged period of economic drag.
The 10-Year Treasury: A Beacon of Safety
Amid all this uncertainty, the 10-year Treasury yield took a notable tumble. In what appeared to be a classic case of a “flight to safety,” investors dumped riskier assets in favor of government bonds. The drop in yields wasn’t just a minor blip—it was a clear signal that, when the going gets tough, the tough get bond-y. This move underscored the market’s growing unease and the desire to park funds where the risk is relatively lower.
White House: Masters of Mixed Messages
If the market needed further encouragement to jump ship, the White House delivered a master class in ambiguity. Mixed messages—from touting optimism one minute to hinting at possible policy shifts the next—only fueled the anxiety already simmering among investors. The lack of a coherent narrative left market participants scrambling for clues, further accelerating the move towards safe-haven assets.
Smart Money’s Great Escape
In a week defined by uncertainty and contradictory signals, the so-called “smart money” made its intentions crystal clear. As stocks wavered unpredictably, the savvy moved en masse into bonds and gold. With gold prices climbing and bonds offering a more predictable yield environment, the message was loud and clear: when chaos reigns, protect your nest egg by sheltering in assets that have historically weathered the storm.
Thoughts!
It was a week that reminded everyone—perhaps with a bit of a sarcastic chuckle—that market stability is often more myth than reality. With inflation nudging prices upward, retail sales underperforming, and economic growth projections being trimmed, the underlying risks are very real. Meanwhile, the steady decline in Treasury yields and the retreat of smart money into bonds and gold signal a broader retreat from risk. In times like these, the only certainty is uncertainty, and even the most confident market pundits might want to reconsider their positions.
In short, if you were looking for a week of calm and predictable trading, you might want to look elsewhere. But for those who appreciate a dramatic, unpredictable, and slightly absurd market performance, February 10–14, 2025, was nothing short of a spectacle.
My take: Numbers, charts, and volume always tell a story (often investors don’t listen)
Let’s start with the 10-year Treasury chart from last week. Notice the huge spike higher after the inflationary CPI report, then the quicker decline in yields. The decline in yield means there was buying, and a lot of it. Yields move in the opposite direction (down) when there is buying
Below is the 10-day chart of the 10-year Treasury. (Notice the sharp spike up and down.)
Here’s the deal: The smart money is clearly making a beeline for safety. Now, before you start screaming “market crash,” let’s be clear—that’s not what I’m saying. But they see more risk than reward in stocks right now, which is why they’re piling into bonds.
I’m not exactly a bond enthusiast myself, but I do like to follow the smart money. And if you’re a trader, you’re fine…for now. Just keep your eyes open. If the right opportunity comes along, it might be wise to pocket some gains and wait for the market to cool off a bit. After all, that’s exactly what the smart money seems to be doing.
When: (this happened last week)
Declining stocks beat advancing stocks by a ratio of 2.5 to 1.8, but advancing volume in the same day beat declining volume in the same day by a ratio of 5.1 to 3.5. This may be indicating.
This scenario suggests a mixed market sentiment with potential underlying strength. Here’s why:
Declining Stocks Outnumber Advancing Stocks: A ratio of 2.5 to 1.8 shows more stocks are declining than advancing, indicating general market weakness or selling pressure.
Advancing Volume Beats Declining Volume: The advancing volume ratio of 5.1 to 3.5 indicates that the stocks that are advancing are doing so on higher volume compared to the declining stocks. This suggests strong buying interest in the advancing stocks, despite the overall market breadth being negative.
Interpretation
- This divergence is typically seen as a bullish sign for a select number of stocks because it implies that the buying interest is concentrated in a smaller number of advancing stocks, potentially high-quality or leading stocks. This could indicate accumulation or selective buying, possibly by institutional investors.
- It might also suggest that the market is setting up for a rebound, as smart money is flowing into certain sectors or stocks even as the broader market shows weakness.
Make sure you are following the institutional investor. (The money). The pockets of strength are not broad. And don’t wait for the last dollar off the table.
My final thought
The current market is being supported currently by the massive amount of liquidity that has been sidelined for approximately 2 years (money moved to safety after the 25% correction) when everyone was waiting for a recession and collecting 5% interest, saying the risk of recession was not worth the reward. That massive amount of money now has the FOMO factor. Massive amounts of money are continuing to flow into the retail side of mutual funds. The sky is not falling yet. But there are chinks in the armor. There is still money to be made “in the short term”!! BUT smart money is moving to bonds. Here are the reasons why! First and foremost, the uncertainty coming out of the new administration. Policy changes change investments by institutions, and continued uncertainty can also change the minds of CEOs on whether to spend money and hire or not. (Higher interest rates would hinder spending), and institutions know that. Next, the Atlantic Fed GDP Now report showed a significant drop in the projected GDP for the first quarter. The drop is not yet a reason for alarm, but it could turn into a problem if consumer sentiment comes in lower than expectations on the 21s. Inflation is the next problem as perceived by the market. While Wednesday’s headline number was driven by egg prices, which is a transitory number, underneath that was car insurance cost, which is not transitory, and the overall inflation numbers are gradually moving in the opposite direction. (See chart below.)
It would not take much for a deep market correction to occur. Heck, look at the foolish DeepSeek scare a few weeks ago. And finally, everyone has to remember that a bubble does not burst from a massive amount of pessimism. It happens when everyone is overly optimistic.
Does anyone remember the dot-com bubble? High-beta stocks were going through the roof at that time. (Note: high beta stocks tend to be more volatile.) Money was being thrown hand over fist at companies with nothing more than a business plan that is called speculation. When speculation like that occurs historically, it is near the end of a bull market. That occurs when “everyone is in.” I have noticed recently that happening. This takes time to come to fruition but we are at the early stages. And don’t look for help from the Federal Reserve in the near term. These are reasons why smart money is moving into bonds. And that is why I say if the opportunity presents itself to take profits, don’t look a gift horse in the mouth. This presents a problem to the market and the Federal Reserve is not lending a helping hand.
The Federal Reserve: A Rudderless Vessel in Choppy Waters
Speaking of the Fed, our dear central bank currently resembles a rudderless ship floating in stormy seas. Tasked with being the forward-thinking guide for market expectations, the Fed’s recent performance has been, shall we say, less than inspiring. Their inaction leaves investors scrambling for safer harbors—namely, bonds—while the economy teeters on a knife-edge.
The 2% Inflation Target: A Cosmic Joke?
Now, let’s talk about that holy grail of monetary policy—the infamous 2% inflation target. Its origins are nothing short of laughable. Legend has it that during a late ‘80s TV interview, New Zealand’s then Reserve Bank Governor Don Brash offhandedly suggested a 0-2% range as the magic number for price stability. No elaborate models, no rigorous analysis—just a spur-of-the-moment quip that, against all odds, morphed into a global benchmark. It’s as if someone pulled a number out of a hat and declared, “That’ll do!” And yet, this rigid target has since shackled policy worldwide.
Time to Embrace Flexibility: Set a Range, Not a Rigid Target
Given the wild liquidity influx between 2019 and 2022—thanks to unprecedented government spending and historically low rates—the economy now wrestles with an oversupply of dollars. A rigid 2% target is not only archaic but also sets the stage for perpetual disappointment. A flexible range, say 2-3%, would provide the Fed with much-needed leeway, enabling a more measured, forward-looking response to economic shifts without igniting market hysteria at every minor miss.
Washington’s Tariff Tango and Policy Ping-Pong
Most market participants are not the sharpest tool in the shed. They get emotional at the slightest miss of earnings, the slightest hot read of an economic number and it doesn’t take long for the domino effect to take place.
Setting a public range between 2-3% creates leeway for the Federal Reserve and keeps an economy growing. Being forward-looking this gives him time to react accordingly. But most importantly, it keeps an economy on a growth path. Being data-dependent on a month-to-month basis and setting a firm target at 2% only sets him and the markets up for disappointment and, worse, possibly failure.
What is coming out of Washington?
In the current inflationary environment, tariffs would not be good for the market. But in saying that the markets don’t believe they are going to be as bad as everyone expected. When I say the current environment, I mean right now. Tariffs are a one-time increase in whatever product it affects. In the current environment, we have rising prices. The “goods” prices have begun to rise again. Depending on what is tariffed will depend on the inflationary figure.
The bottom line on policy
I have learned who is in the White House matters less than how their economic policies affect the market. If tariffs are not as bad as the market currently believes government spending is decreased and the budget is balanced, expect interest rates to come down, and inflation will only be seen occasionally in the rearview mirror. One thing that will not change the media will continue to fill everyone’s mind with dirty laundry and fear until anything is history.
Is the party over?
The party isn’t over yet, but the intelligent ladies (smart money) are leaving early.