Market Mirage, Banks Tank, Crisis Calms in Iran?
Beyond the major equity indexes, the marketplace was actually overwhelmingly positive on Wednesday; also Trump appears to back off Iran, and we chart the market.
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Invictus
I thank whatever gods may be
For my unconquerable soul.
In the fell clutch of circumstance
I have not winced nor cried aloud.
Under the bludgeonings of chance
My head is bloody, but unbowed.
Beyond this place of wrath and tears
Looms the Horror of the shade,
And yet the menace of the years
Finds, and shall find, me unafraid.
- William Ernest Henley, 1875
What Just Happened?
Equity index futures are trading higher overnight, as crude oil prices contract. Safe haven assets like gold and silver appear to have run into some profit-taking as well. Pres. Donald Trump, on Wednesday evening, downplayed the possibility of an imminent U.S. attack on the regime, speaking to the press at the White House. The president said, "We've been told that killing in Iran has stopped -- it has stopped. That has just gotten to me, some information, that the killing has stopped, that the executions have stopped."
Earlier, during the day, U.S. armed forces were reportedly evacuating personnel from Al Udeid Air Base in Qatar. Readers may recall that back in June, during the Twelve Day War, the U.S. did remove service members from that base ahead of launching the attack on Iran's nuclear capable sites. Iranian forces were ineffectual and did launch missiles at that base in June that were largely intercepted.
The Strangest of Days
On Wednesday, the Nasdaq Composite surrendered an even 1%, while the S&P 500 gave up 0.53%. Trading volumes, by the way, were much higher than they had been prior. By the book, technically, a "day one" bearish reversal of trend may have occurred this week. In fact, we now have two consecutive days of pressure on the major U.S. equity indexes and on expanding activity at that. This is what the action looks like on a chart:
So, why am I not convinced that the trend has turned? Let me explain. It's simple. Beyond the major equity indexes, our beloved marketplace was overwhelmingly positive on Wednesday. Sure, Big Tech and the Mag 7 singers took their beating, but that capital did not leave the equity marketplace, it found other homes. Our own James "Rev Shark" DePorre explained what happened on Wednesday to perfection in his market wrap up last night.
While those headline-level indexes, we just mentioned took a step back, the Russell 2000 gained 0.7% while the S&P 600 tacked on 0.55%. Are small caps alone enough to move breadth from negative to positive? Maybe not. Throw in the Defensives and maybe you have a deal. Let's talk about it.
Marketplace
Of the 11 S&P sector SPDR exchange-traded funds, seven closed up for the day on Wednesday. Energy (XLE) led the way, which will reverse today on the Iran news. After that, places two through five all went to sector funds with defensive characteristics. "Growth" was hit like an ATM machine on Saturday night as communication services (XLC) and tech (XLK) took their lumps alongside the discretionaries (XLY) .
You kids are going to love this. Remember that while the Nasdaq is largely the home exchange to most of "big tech", it's also the home exchange to most small caps that trade publicly. I'm not talking about micro or nano caps, many of which still trade over the counter, but true small caps.
Down day on Wall Street? Really. Didn't do much homework, did ya? Winners beat losers by nearly a two-to-one margin at the NYSE and by a four-to-three margin at the Nasdaq. Advancing volume took a surprisingly impressive 69.6% of composite Nasdaq-listed trade and a 63% share of composite NYSE-listed activity as well. Here's where it gets really interesting.
Aggregate trade increased on a day-over-day basis by 8.7% across NYSE-domiciled names and by an incredible 29.2% across Nasdaq-listed securities. Not only was Wednesday not a "day one" reversal of trend, but it was also not even close to being one. Look back up that chart of the S&P 500. Though both indicators ebbed a bit on Wednesday, both the RSI, or relative strength index (above the chart), and the daily moving average convergence divergence (below the chart) are still set up for the bulls.
Beatdown City for the Banks...
Wells Fargo (WFC) , Bank of America (BAC) and Citigroup (C) all reported fourth quarter financial results on Wednesday. All four were taken out to the woodshed, surrendering 4.6%, 3.8% and 3.3% respectively. Thank goodness we got our tails out of Wells Fargo, which is already down 8.7% from its 2026 high.
Unfortunately, we did not get our tails out of JP Morgan (JPM) , which has also been pulverized for 8.7% over 10 days. Word to the wise, I am not adding to my JPM long on weakness unless the stock can retake its 50-day simple moving average in short-order. A failure to do so, and I'm probably getting out bruised and heading down to the 200-day simple moving average with many other pros to wait for Jamie when he gets there.
Anyone Else Notice...
That the U.S. Federal budget deficit contracted by $109 billion, or a rough 15%, for Q4 2025 over Q4 2024. All mostly due to tariff-driven revenue that many public and private sector economists still don't and refuse to understand as well as increased income tax receipts. In a supposedly weaker economy. Things that make you go hmmm...
Note to Readers
I will be playing Don Strock to Doug Kass' Dan Marino over at the Diary today. Stop in and say hello. Tell me you love me. Tell me you hate me. Tell me whatever you want. We have stocks. We have economics. We have fun... and we have baseball.
Economics
(All Times Eastern)
08:30 - Export Prices (Oct): Expecting -0.1% m/m, Last 0.0% m/m.
08:30 - Export Prices (Nov): Expecting 0.1% m/m, Last ?
08:30 - Import Prices (Oct): Expecting 0.0% m/m, Expecting 0.1% m/m.
08:30 - Import Prices (Nov): Expecting 0.1% m/m, Last ?
08:30 - Initial Jobless Claims (Weekly): Expecting 209K, Last 208K.
08:30 - Continuing Claims (Weekly): Last 1.914M.
08:30 - Empire State Manufacturing Index (Jan): Expecting 0.1, Last -3.9.
08:30 - Philadelphia Fed Manufacturing Index (Jan): Expecting -5.3, Last -10.2.
10:30 - Natural Gas Inventories (Weekly): Last -119B cf.
4:00 p.m. - Net Long-Term TIC Flows (Nov): Last $17.5B.
The Fed
(All Times Eastern)
08:35 - Speaker: Atlanta Fed Pres. Raphael Bostic.
09:15 - Speaker: Reserve Board Gov. Michael Barr.
12:40 p.m. - Speaker: Richmond Fed Pres. Tom Barkin.
Today's Earnings Highlights
(Consensus EPS Expectations)
Before the Open: (BLK) (12.32), (GS) (11.71), (MS) (2.41)
After the Close: (JBHT) (1.80)
At the time of publication, Guilfoyle was long JPM equity.
