The Monday Morning Playbook: Week of February 3, 2025

Good morning,

I try to avoid the news around here and I try even more to not incorporate weekend news.

But dancing around the tariffs announcement is unavoidable.

Over the weekend, President Trump slapped 25% tariffs on Canada and Mexico and additional 10% tariffs on China.

In last week’s Playbook, our one “Play” was “Conservative investors can get more defensive by reducing equity overweights and decreasing defensive sector underweights”.

This week, that extends to everybody.

S&P futures gapped lower by about 2% at last evening’s open with the Russell 2000 and Nasdaq 100 contracts down more. The dollar was higher by about 0.8%.

This isn’t a kneejerk reaction to the news though.

Stocks down, dollar up has been a risk and a theme we’ve been closely watching since our Bear Case Overtime report on December 10.

This is a just a continuation of that trend.

Other “trends” that suggest caution are 6100 continuing to act as resistance for the S&P 500 (this latest failed test with bearish breadth divergences) and investors selling tech to buy defensives.

I don’t want to be positioned outright bearishly in light of the dominant market trend and (at least until now) there have been far more opportunities for investors to make money on the long side than short.

But this is a time to be a lot closer to neutral on equity allocations and less underweight defensive sectors.

This week’s report will review:

• Last week’s price action

• Market breadth

• January performance

• February seasonality

• Foreign equities

• Currency markets

• Commodities

• Technicals for major earnings reporters this week

• and more!