Stocks on Edge

Stocks

An important question over the next four weeks is whether larger-than-usual tax refunds will find their way into crypto and/or the stock market. The Big Beautiful Bill (BBB) lowered tax rates in 2025, but the IRS did not change withholding and therefore US taxpayers are about to receive a windfall of $60B to $100B. Average refunds are going to rise from $3,100 to $3,800, approximately, per this chart from JPM.

Tax refunds are one reason stocks tend to rally in mid-to-late March. The next chart shows how tax refunds jump in week 8 and 9 of the year and the flows come in week 10 and 11. We are currently in Week 8.

There are two problems for equity bulls here. First, stocks first enter a period of seasonal weakness (15FEB to 28FEB) as tax refunds haven’t landed in accounts yet. Here is average performance of the NASDAQ from 01FEB to 31MAR (back to 2005).

The new year’s flows peter out by mid-February, while 401k flows peak 15FEB as people are paid mid-month, and there is a sloppy baton pass to the buying in early March on tax refund flows.

The other problem for bulls is that retail buying often favors momentum. And momentum right now is down. Therefore, one might reasonably assume that retail investors could take their lumpier-than-usual tax refunds and pay down debt or buy earbuds, or UberEATS, or fidget coils instead of RGTI or DOGE. The table below shows the performance of the NASDAQ in weeks 8 through 12, conditional on whether the NASDAQ was up or down on the year to that point. The NASDAQ is down 3% year-to-date. It’s fair to note that the S&P 500 is UP 3% this year, so using the NASDAQ paints a more bearish picture. That said, most of the unprofitable tech and other companies favored by retail traders are listed on NASDAQ, so I think it’s the correct index to look at here.

You can see that this week tends to be a bad one if we come in down YTD. After that, it becomes fairly mixed, with next week generally bearish into EOM and then bluer skies in March. The main takeaway here is that stocks could continue to struggle until the end of the month and then we see if the tax refunds create a tradable bottom.

Here are two good articles on stocks:

Fund beating 99% of Peers Sees Few Software Firms Surviving AI

Rampant AI Demand for Memory is Fueling a Growing Chip Crisis

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Calendar

This week’s calendar lacks luster. Lunar New Year holiday in China. RBNZ tonight is somewhat important.

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Final Thoughts

1. As discussed last week, Lunar New Year has seen some major turns in USDCNH. With G10 FX reversing and AUDUSD failing perfectly at the 2023 high mega resistance (0.7120/60), it’s time to take profit on your USDCNH puts! Also, lower US equity prices are not leading to a weaker USD. This isn’t great for the AUD pension fund hedging optimists.
2. I still think cross/JPY can go much lower. Especially if we get another 5% off in equities.
3. New from Justin Ross
   https://squareman.substack.com/p/a-love-letter-to-music

4. BofA chart here captures the current capex vibe.

I hope you have a well-centered week.

Hi. Welcome to this week’s report. The market continues to sit short USD but the catalysts are mostly gone and the trade isn’t working. The blowoff top in EURUSD on Trump’s benign neglect comment and the stiff rejection of the critical 0.7120/60 zone in AUDUSD has put an end to the USD lower trade for now. Consolidation looks likely as positioning still needs to come off but there is no real reason to be raging bullish USD. Many options expiring Thursday.

https://www.reddit.com/r/dataisbeautiful/comments/1r6dkxa/oc_face_locations_in_the_average_movie/

More interesting analysis of faces in movies here

Citizen Kane

good luck ⇅ be nimble