Hard Day for Software, Energy Heats Up, AI Comes for White-Collar Jobs
Let's make sense of the explosive market moves on Tuesday, the Anthropic shakeup, and why Rocket Lab and Palantir swam against the tide.
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Man on the Corner
Looking everywhere at no one
He sees everything and nothing at all
When he shouts, nobody listens
Where he leads, no one will go
He's a lonely man, there on the corner
What he's waiting for, I don't know
But he waits everyday now
He's just waiting for something to show
Nobody knows him
And nobody cares
'Cause there's no hiding place
There's no hiding place for you and me
- Phil Collins (Genesis), 1981
Uncle Marty and Aunt Mary
Please forgive this myopic public service announcement. We'll get back to the fun and games of trying to make money shortly. That is what you, the readers, indirectly pay me for, and capital creation is my livelihood. That said, we all have an Uncle Marty or an Aunt Mary. I don't have relatives by those names, but I have similar relatives. Uncle Marty tries to keep you on the phone too long because maybe he lives alone. Maybe he lost someone and you are pretty close to all he's got.
Aunt Mary likes to brag to the point of obnoxiousness about her grown children. She can be annoying. You know things about your cousins that maybe she does not. Don't hold that against her. Grant her your patience. Find a night that you don't need to watch the hockey game or don't need to watch the stupid sitcom.
Call Uncle Marty and let him go on for a while. Take him to the kitchen with you. Take him to the bathroom if you must but let him drone on. He needs to. Call Aunt Mary. See her. Acknowledge her. Hear them. They need this. They are humans and likely thirst for social interaction and interpersonal connection.
I'm not asking anyone to spend their free time feeding or clothing the homeless population in their area. I know beautiful people who do just that. They make a kind of sacrificial outreach from their hearts despite the obvious danger this can present. They give freely of themselves. I am asking that every one of us think of someone out at the perimeter of our lives who's probably lonely. Let them know that someone in their universe gives a hang. If you can't do it for them, do it as an act of sanctifying grace. Reach for someone else. I doubt you'll regret it.
The Pummeling
What a day Tuesday was. Oh my. Capital flows ran away from tech stocks, software stocks in particular, but technology (XLK) in general and flowed into energy (XLE) , materials (XLB) , staples (XLP) and utilities (XLU) . Hmm. What could that mean? Investors would flock toward energy and materials stocks if the economy were booming. Is the economy booming? Outside of labor markets, I would say, certainly.
January's ISM Manufacturing Survey backed up the idea that this nation might be experiencing a jobless burst of economic activity. Generative and agentic artificial intelligence? Beyond a shadow of a doubt, my economic brain will tell you that we are on the cusp of a dramatic increase in productivity and localized capital spending. Yes, this will pressure demand for labor and wage growth.
Labor markets support the consumer, and we know are not terribly strong at the moment. That matters. Hence the move into sectors with defensive characteristics such as those above-mentioned staples and utilities. The Bureau of Labor Statistics will not publish January labor market data this Friday. If I am a human trader, this matters. If I am an algorithm, that particular threat / catalyst is simply removed from the equation. Understand? In this modernized, high-speed process of determining price at the point of sale, once an input is removed or delayed, it does not exist until it does. That's mathematics.
We'll hear two slices of data that will impact prices this morning. ADP's January Employment Report that includes only private sector jobs will have to suffice as a benchmark for labor market performance through January and the ISM will publish their service sector survey for January a little later. This data, given the lack of hard numbers that we'll see from here into the weekend, will move your profit / loss ratio.
One Other Thing...
Seemingly off the beaten path, AI start-up Anthropic PBC may have sparked the tech selloff, by simply launching new AI productivity boosting tools on its website meant to automate legal work on its "Claude Cowork" platform. The fear now is that if a company like Anthropic can produce an artificial intelligence that can relieve junior-level attorneys of their routine research-related tasks and simple "grunt" work, then these tools can likely be adapted to a number of industries.
The white-collar world is in deeper trouble than they know. If I were young, I would much rather be an apprentice level electrician or plumber than a junior accountant or anything along those lines. Certainly not a trading assistant. At least a plumber can own his or her own business and future generations are going to have to be entrepreneurial in how they approach feeding themselves for the next thirty or forty years.
Remember, all of the software companies are customers of the cloud computing services providers / hyperscalers. This threat, though in its infancy, will extend well past software into hardware and beyond. Though there will still be increased demand for processors and memory / storage, but one would think that if automated client relationship management companies are not paying up for these services that margins will contract.
Does that mean that this is the end of this era? No. As the world evolves, so must we adapt. There is always a way to win. There is always a way to overcome obstacles that present themselves in between where you are and where you need to go. You can do this. I will stand with you. Do not fear.
Marketplace
How does one explain a day where the Dow Transports run 2.03% higher led by transportation / delivery types such as FedEx (FDX) and JB Hunt (JBHT) ? Or a tech-centric Nasdaq 100 that gives up 1.55% as the Dow Jones U,S, Software Index surrenders 3.48%, dragging the Philadelphia Semiconductor Index 2.07% lower. Ahh, the wonders of passive investment. Long live the stock-pickers.
For those wondering, software firms directly impacted by Anthropic's new suite of products like Docusign (DOCU) and Intuit (INTU) were down 11.4% and 10.9% respectively on Tuesday. The S&P 500? Gave up 0.84%. Could have been worse. At least the small caps held their own.
Now, if one was in the right stocks, Tuesday was not awful. Not that I was. Most of you know that I am growth-heavy, but one Tuesday, I did have Rocket Lab (RKLB) and Palantir (PLTR) on my side. Both of these "Stocks Under $10" and Sarge-folio core names are among my largest positions and just happened to make like salmon swimming upstream, gaining 9.6% and 6.9% in that order. Now I have to deal with Advanced Micro Devices (AMD) , which caught an overnight beat-down.
Interestingly, winners beat losers by a seven-to-six margin at the NYSE, but losers beat winners by about seven-to-five at the Nasdaq. Aggregate trade was elevated. From Monday's levels, composite NYSE-trading volume popped for an increase of 21.6% while Nasdaq-listed volume gained 16%. So, was Tuesday a bearish day of reversal?
The short answer is that despite the bloodshed, no... it was not. Advancing volume took a 55.8% share of all NYSE-domiciled trade and a 51.2% of Nasdaq-domiciled trade. That's right. A majority share of trade across the realms of stocks listed at both of New York's major equity exchanges were made on the advance. They were not made to initiate sales.
Take a Look...
There are two things on this chart of the S&P 500 that I need readers to see. One. The index found support at its 50-day simple moving average. That's a positive. That means that active managers defended the broader stock market on Tuesday. This was the second time in four days that those active managers came through. There are real bids at that level.
Secondly, Tuesday presents as an "Outside Day," which is a one-day candlestick pattern that foretells a coming period of volatility. What does that mean? Simple. When you get your socks knocked off, you will not be surprised and more importantly, you will be able to find them again. I might just find a way to keep my socks on. Sarge out.
Economics
(All Times Eastern)
07:00 - MBA 30 Year Mortgage Rate (Weekly): Last 6.24%.
07:00 - MBA Mortgage Applications (Weekly): Last -8.5% w/w.
08:15 - ADP Employment Report (Jan): Expecting 45K, Last 41K.
09:45 - S&P Global Services PMI (Jan-F): Flashed 52.5.
10:00 - ISM Non-Manufacturing Index (Jan): Expecting 53.7, Last 54.4.
10:30 - Oil Inventories (Weekly): Last -2.296M.
10:30 - Gasoline Stocks (Weekly): Last +224K.
The Fed
(All Times Eastern)
6:30 p.m. - Speaker: Reserve Board Gov. Lisa Cook.
Today's Earnings Highlights
(Consensus EPS Expectations)
Before the Open: (ABBV) (2.65), (CME) (2.74), (LLY) (6.95), (GEHC) (1.40), (UBER) (.70)
After the Close: (GOOGL) (2.64), (ARM) (.41), (MCK) (9.27), (WEX) (3.92)
At the time of publication, Guilfoyle was long RKLB, PLTR, AMD equity.
