Macrosynthesis
TLDR
Institutional Investors Reduce Exposure – The stock market saw its sharpest decline in two months as institutional investors cut positions.
Retail Buying Slows, Momentum Stocks Struggle – Retail net purchases hit $5.9B this week, well below previous peaks, as momentum stocks tumbled -8% in two weeks, reflecting a shift toward ETF inflows over individual stock bets.
New Coronavirus Discovery Sparks Market Jitters – A new bat coronavirus found in China, with MERS-like characteristics, triggered a rally in vaccine stocks, raising concerns over biosecurity risks and potential future outbreaks.
Russia Gains Leverage as U.S. Shifts Focus – As U.S.-Russia talks progress, Moscow is positioning itself to extract greater concessions, sensing a potential shift in U.S. foreign policy toward China.
Alibaba Earnings Beat, Stock Surges +13% – Alibaba (BABA) reported net income of ¥48.95B ($6.72B), tripling YoY, with cloud sales up 13% and AI-driven revenue surging for six straight quarters, fueling a 50% YTD stock rally.
Stocks Retreat from Highs as Institutional Investors Reduce Exposure
The stock market experienced its sharpest decline in two months after reaching record highs, as institutional investors began stepping back while retail traders remained aggressive buyers. The funding spread, a measure of institutional demand for leveraged stock positions through futures, options, and swaps, has dropped 50 basis points in recent weeks, hitting its lowest level since August 2024. A similar contraction in December 2021 preceded the 2022 bear market, raising concerns about a potential sentiment shift among professional investors.
The downturn coincided with a worsening economic outlook, as consumer sentiment, housing data, and business activity weakened while long-term inflation expectations surged to their highest level since 1995. Interestingly, a different poll revealed that the sentiment was largely pushed lower by those identifying as democrats, while republicans tended towards a more positive outlook. This dichotomy could explain why money is flowing into ETFs but out of stocks.
Trump also pushed his special advisor, Elon Musk, to move his DOGE group towards more cuts in federal spending via a post on Truth Social. The $500B cutting target has many federal employees, contractors, and NGOs completely spooked. And the ripple effects of these cuts and pauses are starting to show in Washington, D.C. and other cities.
These factors reinforced uncertainty over the Federal Reserve's rate trajectory, leading to increased hedging activity. VIX call options volume exceeded 1 million contracts for the sixth time this year, with traders targeting strikes of 24 and 25 for March expiration, suggesting expectations of higher volatility around the Fed meeting on March 18th.
Adding to the risk-off sentiment, a massive $2.7 trillion in options tied to equities and ETFs expired, increasing price swings. The S&P 500 dropped -1.7%, while the Nasdaq 100 tumbled -2.1% and the Russell 2000 - a measure of small cap stocks - fell -2.9%, indicating broad-based selling across major indices. Meanwhile, a late-session rally in vaccine stocks followed reports of a new coronavirus discovery in China, further fueling market jitters.
Recession-resilient Stocks Outperformed Last Week
The utilities sector led the S&P 500 this week with a 1.4% gain, followed by healthcare and energy, both up 1.1%. Consumer staples stocks also posted positive returns at 0.9%, while real estate stocks edged higher by 0.5%. On the downside, financials and materials sectors each declined -2%, while industrial stocks fell -2.1%. Information technology was slightly better, slipping -1.8%, whereas telecom saw a sharper drop of -3.7%. The biggest laggard of the week were consumer discretionary stocks, which tumbled -4.3%, marking the worst performance among all sectors.
Retail Buying Slows as Momentum Stocks Struggle
While retail traders have been aggressively buying into the market rally, their enthusiasm appears to be fading. Retail net purchases totaled $5.9 billion this week, slightly above the 12-month average but significantly lower than the $12 billion peak from prior weeks. This slowdown suggests that retail investors, who had been major drivers of market gains, may be losing confidence or do not have any more cash to deploy into the market (fully invested). In either case, this generally leads to a selloff as there are more net sellers than buyers.
Notably, ETF inflows rose to $4.1 billion, while individual stock purchases weakened, signaling a shift toward more diversified exposure rather than high-conviction bets on individual names. Many high-growth stocks, including those in the JPM Meme Stock Index and ARKK ETF, have suffered steep declines, reflecting an unwinding of speculative trades. Momentum stocks have dropped nearly -8% over the past two weeks, and if retail participation continues to slow, further downside risks could emerge.
Institutional positioning also reflects growing caution. Hedge funds have trimmed their net exposure to the "Magnificent Seven" tech stocks, indicating a move toward risk management rather than cocentrated exposure. Meanwhile, short interest in the S&P 500 stocks has climbed to its highest level since 2020, reaching 2% of market cap - a sign that investors are positioning for further declines.
Technical Breakdown Signals Possible Downtrend
The recent pullback has intensified as key indices struggle at major resistance levels. Both the Nasdaq and S&P 500 have formed double-top patterns, a technical signal that often precedes a reversal. The Nasdaq failed to break above its upper trading range, and is now approaching its 50-day moving average, which serves as a critical support level. A break below could accelerate downside momentum, bringing lower price targets into play. Of course, macro events can change this instantly.
The Russell 2000 has already breached its 200-day moving average, a bearish development that signals small-cap underperformance and potential broader market deterioration.
Hedging activity has risen alongside these technical breakdowns. Demand for downside protection has surged, with traders increasing volatility exposure through the VIX.
Retail investors, who had heavily bought into the recent rally, now risk being caught on the wrong side of the trade as momentum shifts against them. Given the combination of weak economic data, deteriorating savings rates (shown below), institutional deleveraging, and deteriorating technicals, the market could remain vulnerable to further downside pressure in the weeks ahead.
New Coronavirus Discovery Adds to Market Jitters
Market anxiety deepened following reports that researchers at the Wuhan Institute of Virology identified a new bat coronavirus, HKU5-CoV-2, that enters cells using the same receptor as COVID-19. While the virus has not yet been detected in humans, its ability to infect mammalian cells raises concerns about potential spillover. This strain is closely related to Middle East Respiratory Syndrome (MERS), a virus with a 36% fatality rate, according to the World Health Organization (WHO). Scientists warn that its cross-species infection capability increases the risk of future human transmission, though its full threat remains uncertain.
The news sent vaccine stocks surging, with Moderna rising 6.6%, Novavax up 7.8%, and BioNTech climbing 5.1%. Pfizer also gained 2.6%, reflecting renewed investor interest in pandemic-related plays.
Trump Shifts Focus to China Amid Ukraine Negotiations
As U.S.-Russia negotiations advance, China is maneuvering as both a potential mediator and a strategic beneficiary. While Beijing publicly supports Trump’s push for a Ukraine settlement, it is also preparing to capitalize on reconstruction efforts and expand its influence in Europe. However, the bigger concern for China is the shifting trajectory of U.S. foreign policy. With a resolution in Ukraine on the horizon, Trump’s administration appears set to refocus its geopolitical efforts on China, escalating tensions over trade, technology, and military dominance in the Indo-Pacific.
At the same time, Chinese tech stocks are rallying, driven by AI investments and easing regulatory pressures. This surge complicates Trump’s trade strategy, as heightened tariffs or policy crackdowns could disrupt China’s market momentum. Morgan Stanley has abandoned its bearish stance on Chinese equities, citing a “structural regime shift.” The firm raised its MSCI China Index target by 22%, aligning with bullish outlooks from Goldman Sachs and JPMorgan. With AI advancements and regulatory easing fueling the resurgence, China is emerging as a critical force in global investment flows.
U.S. Economy Slows as Consumer Confidence Weakens
The S&P Global U.S. Composite PMI fell to 50.4 in February, signaling near-stagnation in the private sector. Services contracted, offsetting modest manufacturing growth, while new orders weakened and employment declined amid rising costs. Business optimism hit its lowest level since late 2022, driven by concerns over spending cuts, tariffs, and inflation.
Consumer sentiment also declined, with the University of Michigan index dropping to 64.7, its weakest since November 2023. Buying conditions for durable goods plunged 19%, as fears of tariff-driven price hikes grew. Inflation expectations surged to 4.3%, the highest in over a year.
The housing market struggled, with existing home sales down 4.9% in January, the sharpest drop in seven months. Despite multiple Fed rate cuts, mortgage rates remain high due to inflation concerns, keeping housing affordability low. Home prices fell 1.9%, while inventory increased, pointing to a cooling market.
Upcoming Events This Week
Investors will closely monitor speeches from Federal Reserve officials, seeking insights into future policy moves. Key economic data releases include personal income and spending, PCE price indices, durable goods orders, and the second estimate of Q4 GDP growth. Consumer sentiment will also be in focus with the CB Consumer Confidence report.
President Trump is beginning work with members of Congress, presumably to pass legislation for tax cuts and deregulation which would give more confidence that his policies of tariffs would be offset by lowering the costs of doing business and increase net wages.
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Natural Gas
+2.7% (1D Chg)
+14.48% (1W Chg)
Gold
+1.89% (1W Chg)
+6.53% (1M Chg)
Sugar
+4.5% (1W Chg)
+17.30% (1M Chg)
Eggs
+4.5% (1W Chg)
+22.6% (1M Chg)
Company News
LevelFields AI Stock Alerts Last Week
Special Dividend Declared – DCMDF +16% (1D) after approving a $0.20 per share special dividend, payable on March 25, 2025, to shareholders of record as of March 12, 2025.
Stock Buyback Expansion – CRAI +11.37% (1D) following the Board's approval of a $45M expansion to its share repurchase program, adding to the $13.1M remaining under the current plan.
Dividend Increase & Strong Earnings – TAC +6.8% (1D) after announcing solid financial results, a 2.2 GW capacity addition, and $214M returned to shareholders through dividends and buybacks. CEO John Kousinioris highlighted strong generation availability and hedging strategies as key performance drivers.
Alibaba Surges on AI and Cloud Strength
Alibaba (BABA) jumped 13% this week after Q4 earnings beat estimates, with net income soaring to ¥48.95B ($6.72B), more than tripling YoY, and revenue rising 5% to ¥280.15B. Cloud Intelligence sales grew 13%, fueled by AI-driven demand, while AI-related revenue posted triple-digit growth for six straight quarters.
CEO Eddie Wu highlighted massive AI infrastructure investments, set to surpass spending from the past decade. E-commerce remained strong, with Taobao/Tmall up 5% and international sales surging 32%. With regulatory easing and renewed investor confidence, Alibaba’s stock has climbed 50% YTD, reinforcing its leadership in China’s AI and tech resurgence.
Celsius Surges on Alani Nu Acquisition Despite Q4 Revenue Decline
Celsius Holdings (CELH) jumped 28% after announcing its $1.8B acquisition of Alani Nu, despite reporting a 4% YoY drop in Q4 revenue to $332.2M. Full-year revenue increased 3% to $1.36B, while gross margin expanded to 50.2%. International sales were a bright spot, rising 39% YoY. The Alani Nu deal boosts Celsius’ market share to 16%, but analysts caution about potential brand cannibalization. Short sellers took a $250M hit, as the stock’s rally forced short covering.
MercadoLibre Surges on Record Earnings and Fintech Growth
MercadoLibre (MELI) rallied 12.5% after posting a record $639M Q4 net income, crushing estimates of $406M. Revenue jumped 38% YoY to $6.1B, solidifying its dominance in Latin America’s e-commerce and fintech markets. Despite gross merchandise volume of $14.5B missing expectations, total payment volume surged to $59B, in line with forecasts.
The company expanded its credit portfolio to $6.6B, with Argentina seeing quadrupled loan growth amid economic reforms. Unique active buyers hit 67M, while fintech users reached 61M. Analysts remain bullish, with several raising price targets post-earnings. MercadoLibre continues to balance aggressive investment with sustainable growth, reinforcing its position as Latin America’s most valuable company.
DOJ Launches Probe Into UnitedHealth’s Medicare Billing Practices
The Justice Department has opened a civil fraud investigation into UnitedHealth Group (UNH), examining whether the company inflated Medicare Advantage billing by recording questionable diagnoses to increase government reimbursements. The probe follows reports that UnitedHealth-employed doctors recorded diagnoses that were never treated, adding billions in additional payments from Medicare. The investigation also involves the Department of Health and Human Services’ Office of Inspector General, raising the stakes for the country’s largest health insurer.
Shares of UnitedHealth plunged nearly 9%, weighing on the Dow Jones Industrial Average. The probe is separate from the DOJ’s ongoing antitrust investigation and its lawsuit to block UnitedHealth’s $3.3B acquisition of home-health provider Amedisys.
Palantir CEO Offloads $1.2 Billion in Stock, Shares Slide
Palantir (PLTR) fell 13% this week as CEO Alex Karp moves to sell up to 10 million shares, worth $1.2 billion over six months. The stock, which surged 340% in 2024, is facing renewed pressure as investors react to insider selling and concerns over overvaluation.
Retail traders remain a major force behind Palantir’s rally, but institutional investors are pulling back, questioning its 198x forward P/E ratio. Adding to the uncertainty, potential defense budget cuts could impact future government contracts. Palantir’s high valuation makes it vulnerable to sharp corrections.
Microsoft Rumored to Be Pulling Back on Data Center Spending
There's a note circulating around financial forums that has triggered some of the data center infrastructure and power stocks to sell off recently.
"Our channel checks indicate that $MSFT has 1) canceled leases in the US, totaling 'a couple of hundred MWs' with at least two private data center operators, 2) has pulled back on the conversion of 500’s to leases, and 3) has re-allocated a considerable portion of its international spend to the US. When coupled with our prior channel checks, it points to a potential oversupply position for MSFT...this is the same tactic that Meta used to cancel multiple data center leases in the U.S. after we learned in our checks that Meta had then canceled a $48B capex program related to the metaverse (Meta subsequently cut its capex guidance by $5.4B two weeks later).
Separately, our channel checks suggest that Microsoft has also pulled back on converting negotiated and signed Statement of Qualifications (500’s) (the precursor to a data center lease) into signed leases."
If true, it means companies providing services enabling the creation or powering of data centers may not realize the explosive growth that has been forecasted for them. Much of this we've been explaining to our Level 2 members regularly, and will continue to do so.
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This section is here for information only. It's not any endorsement. We will bold stocks included in previous alerts, or if they are market bellwhethers.
Mon.
Dominos Pizza (DPZ), Chegg (CHGG), Hims and Hers Health (HIMS), Tempus AI (TEM), Zoom (ZM)
TUES.
Home Depot (HD), American Tower (AMT), Axon (AXON), Boston Beer (SAM), Cava Group (CAVA), Instacart (CART), First Solar (FSLR), Intuit (INTU), Workday (WDAY)
WED.
Advance Auto Parts (AAP), Janus International Group (JBI), Lowes (LOW), Nvidia (NVDA), Salesforce (CRM), Urban Outfitters (URBN), Marathon Digital (MARA), Emcore (EME), Clear Secure (YOU)
THURS.
Bath & Body Works (BBWI), Papa John's (PZZA), Dell Technologies (DELL), Duolingo (DUOL), NuScale (SMR)
FRI.
Pearson (PSO), FUBO
This is not financial advice. All information represent opinions only for informational purposes. Given the vast number of stocks we cover in these reports, assume staff covering stocks have positions in stocks discussed.
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