Latest / Markets with Megan: A Quick Financial Markets Update / 6 Forces Behind Today’s Market Volatility | S3 E120 | 02-10-26

Transcript

6 Forces Behind Today’s Market Volatility | S3 E120 | 02-10-26 · Markets with Megan: A Quick Financial Markets Update

• 0:00
  Megan Horneman: It's been quite a volatile start to 2026.
• 0:03
  Megan Horneman: It is Tuesday, February the 10th, and this is Markets with Megan.
• 0:07
  Megan Horneman: If you like this podcast, subscribe, hit the alarm bell, share it with your friends, family, or colleagues, anybody who wants to kind of get into the depths of what's going on in the market.
• 0:17
  Megan Horneman: What does the economic data mean?
• 0:19
  Megan Horneman: And how can we start to dissect some of the market moves that we've seen this year, especially some pretty violent ones across some different investments?
• 0:28
  Megan Horneman: So let's start first with addressing the volatility we've seen to start off this year.
• 0:33
  Megan Horneman: And we think there's really six different factors that have contributed to the up and down swings we've seen in the market.
• 0:39
  Megan Horneman: And don't forget that volatility comes in both in a lot of different shapes and sizes.
• 0:44
  Megan Horneman: And you can have upside volatility just as much as you can have downside volatility.
• 0:49
  Megan Horneman: Now, what we've seen is that you know investors have been whipped sold on a daily and even in an intraday basis, not just in equities, but in commodities, and also the the once beloved investment of Bitcoin.
• 1:02
  Megan Horneman: When you look, it starts with the economic data.
• 1:05
  Megan Horneman: Um, first of all, we are starting to get further signs of weakening in the labor market.
• 1:09
  Megan Horneman: We got a bunch of data last week.
• 1:11
  Megan Horneman: Um, the job openings that from the Joltz report, they're the lowest since 2020.
• 1:17
  Megan Horneman: And then according to challenger Gray in Christmas, who keeps a log of the amount of layoffs that are announced publicly, we saw layoffs rise in January by almost 120% on an annual basis.
• 1:31
  Megan Horneman: And that is the worst January since 2009.
• 1:34
  Megan Horneman: Um, capex spending continues to accelerate on AI, but we're seeing those big hyperscalers, your Microsoft, your Amazon, um, Meta, these companies being actually punished for increased CapEx spending plans for this year.
• 1:49
  Megan Horneman: We've seen their stocks pretty volatile.
• 1:52
  Megan Horneman: The rotation out of tech that has continued to grow.
• 1:56
  Megan Horneman: It doesn't mean that tech's necessarily negative, it just means that people are looking for value elsewhere.
• 2:01
  Megan Horneman: So we're seeing, for example, the Russell 2000 and 2500 beating the SP 500.
• 2:07
  Megan Horneman: You're also seeing um the equal cap weighted index of the SP 500.
• 2:13
  Megan Horneman: That um was beating the market cap weighted index by about 425 basis points by the end of last week.
• 2:21
  Megan Horneman: Um, seasonality does play a part.
• 2:24
  Megan Horneman: February is historically the second worst month on record for the SP 500, and it's only been positive about 50% of the time.
• 2:33
  Megan Horneman: And then don't forget it's a midterm election year.
• 2:35
  Megan Horneman: So there tends to be quite a bit of volatility in the markets ahead of the midterm election.
• 2:40
  Megan Horneman: In fact, the average maximum drawdown in the SP 500 in a midterm election year is about 18%.
• 2:47
  Megan Horneman: And the annual return is much lower in a year that we hold a midterm election versus years that there are not midterm elections.
• 2:56
  Megan Horneman: Lastly, the big thing that's really caused a lot of concern in the market is President Trump's pick for the uh FOMC chairman.
• 3:05
  Megan Horneman: Kevin Warsh is an extraordinarily talented individual, very smart, served on the Federal Reserve during the great financial crisis.
• 3:12
  Megan Horneman: So on paper, he has a he's a fantastic choice.
• 3:15
  Megan Horneman: We tend to like the fact that he takes inflation seriously, and we do think that the Fed has been way too dubbish on inflation.
• 3:22
  Megan Horneman: But where the markets are getting concerned is he was very vocal back in the great financial crisis about the dangers of expanding the Fed balance sheet.
• 3:31
  Megan Horneman: So if he comes in and aggressively reduces the Fed balance sheet, if this is done in a way where we lose some of the liquidity or stability in the money markets or in credit markets, that can create a bigger problem, especially in the equities.
• 3:46
  Megan Horneman: So you've seen some things like credit, uh, leverage loans, these things get hit with his pick from a nomination.
• 3:52
  Megan Horneman: And we want to be clear that uh, you know, balance sheet where it is for the Fed, this is not sustainable.
• 3:57
  Megan Horneman: And it we do need to address this and have someone who has the courage to tackle this in a way where we can keep the markets stable as well.
• 4:05
  Megan Horneman: So let's dig into the second topic today, and that's with the monthly retail sales data that we got for the month of December.
• 4:12
  Megan Horneman: And remember, the consumer makes up the majority of GDP.
• 4:16
  Megan Horneman: So if the consumer weakens, we do tend to see the outlook for the economic growth weaken.
• 4:22
  Megan Horneman: And what we saw was whether you look at retail at the headline level, whether you exclude food, autos, gas, building materials, all of these indicators were much lower than anticipated in December.
• 4:35
  Megan Horneman: The big drop was seen in a lot of the discretionary items.
• 4:39
  Megan Horneman: In fact, discretionary spending, when we isolate that out of the report, it's growing at the slowest annual rate in about 14 months.
• 4:47
  Megan Horneman: So you're looking at a big drop in things like motor vehicles, furniture, electronics, and clothing.
• 4:53
  Megan Horneman: Now, because of this report that we got at the end of December, remember it's not inflation adjusted.
• 4:58
  Megan Horneman: So if inflation was put in here, these numbers would be even weaker.
• 5:02
  Megan Horneman: But we have seen that the Atlanta Fed GDP now estimate for fourth quarter has gone down from above 5% now to just 3.7% for the quarter.
• 5:13
  Megan Horneman: Still a great quarter, but we are seeing the impact of a weaker consumer and what that means.
• 5:18
  Megan Horneman: And speaking on the weak consumer, looking at the the Federal of New York's quarterly report on debt and credit, we saw that delinquencies are at the highest level now since 2017, primarily focused on the low-income and the low income and the young workers.
• 5:37
  Megan Horneman: These delinquencies are across a lot of different areas of the market.
• 5:41
  Megan Horneman: Credit cards, those that are 90 days plus, rose 13%.
• 5:45
  Megan Horneman: They're sitting at the highest since 2011.
• 5:48
  Megan Horneman: Auto delinquencies are at the highest since 2010.
• 5:52
  Megan Horneman: And student loan delinquencies, they are at 16%.
• 5:56
  Megan Horneman: That's the biggest increase that we've seen on record.
• 5:59
  Megan Horneman: Now, will the Trump, you know, the one the one big beautiful tax bill help when we start to roll out some of these tax-free funds?
• 6:05
  Megan Horneman: Yes.
• 6:06
  Megan Horneman: And hopefully they're used to pay down some of this debt, but it does show a consumer that still is being very bogged down by the ongoing rise in inflation that just keeps compounding year after year and a weakening in the in the labor market.
• 6:19
  Megan Horneman: That's all we have today.
• 6:20
  Megan Horneman: We'll be back with some more economic data this week.
• 6:23
  Megan Horneman: And if you want a history of our podcast, you go to marketswithmegan.fm.
• 6:26
  Megan Horneman: Thank you.