The Market Outlook for the Week Ahead, or Icebergs Ahead

It was a nightmare week for traders. An onslaught of deteriorating jobs data prompted a tidal wave of short selling as traders gunned for bigger downside targets. The Volatility Index ($VIX) jumped to $22. The S&P 500 ($SPX) plunged a substantial 150 points, or 2.14%.

Then on Friday, that all reversed on an improved consumer sentiment, prompting a panic to cover those short positions. Amazon (AMZN) also helped save the day with the announcement of an incredible $200 billion capital spending program, even though it crushed the stock by 12%. The ($SPX) ended down only 22 points on the week. This kind of heightened volatility with no real net movement is not the sign of a healthy market.

Risk aversion is everywhere.

The leading defensive sector, consumer staples (XLP), is still the leader of the year. You’re always going to need toilet paper, no matter what the economy does. Cheap industrials (XLI) and regional banks (KRE), and incredibly, solar stocks (TAN) on the power shortage story, also ground higher. High-yield REITs showed strength, another indicator of risk aversion.

Technology stocks (XLK) led the downside as software stocks continued to have a going-out-of-business sale. Anything remotely tied to crypto, such as Robinhood (HOOD), Strategy (MSTR), and Coinbase (COIN), got destroyed.

The Bitcoin crash says a lot about risk-taking in this environment. People don’t want any. The unwind of the yen carry trade because of higher yen interest rates is clearly sucking liquidity out of the global financial system. With the pro-stimulus Japanese conservatives winning a clear majority in an election this weekend, the unwind could get worse, forcing interest rates there yet higher.

The new Fed governor nominee, Kevin Warsh, made his career advocating for a smaller Fed balance sheet, and now he is supposed to increase it? We are also still feeling the aftereffects of the government shutdown, and now we have a mini one. None of this is stock market positive.

In short, I see a lot of icebergs on the horizon, and all the good news is priced in the market. We have been trapped in a very narrow range for two months now. It’s too narrow to trade unless you want to sit in front of a screen all day or are an algorithm. That forced me to camp out on the sidelines and wait for better conditions. If you lose money in 2026, it is going to be very difficult to make it back.

Like it or not, we have entered a dark age for economic forecasting. An increasing number of reports are getting cancelled, such as last week’s Nonfarm Payroll. With 80% of the Bureau of Labor Statistics staff laid off, you have to assume the accuracy of the reports has similarly deteriorated.

The end result of this chaos is that the data are now more contradictory than ever. Some parts of the economy, such as banking, energy, and technology, seem to be speeding up, while other areas, like housing, agriculture, shipping, and restaurants, are falling into depression. This has given rise to the “K” shaped economy, where a few are getting much richer, while the majority are getting poorer. Remember, half of the country has no savings whatsoever, and that figure is rising. Those eight-year-olds you see working at McDonald’s are not there by choice.

It gets worse.

We have recently seen some of the worst consumer sentiment surveys on record, indicating that a recession may be near. Yet actual spending is near all-time highs. This can be explained by the fact that the top 10% of the country now account for 50% of all spending.

The rising stock market is another leading indicator suggesting that good times are ahead. But the performance has been dominated by a dozen tech stocks, with the rest going nowhere or down (software). This is the most uncertain, yet prosperous market I have ever seen.

Another misleading indicator is the yield curve, the steepest it has ever been. While overnight rates have been falling for a year, the long bond rates have been rising, suggesting capital flight from business. A recession usually follows, but not yet.

The rock-solid US dollar (UUP) for the past decade was another sign of economic strength. Yet it has plunged by 20% or more against many currencies over the past year and has further downside to go. Go figure. International trade has collapsed, another negative indicator. Maybe its dire effects are simply delayed?

This disarray is not a recent thing. It really started with Covid six years ago, when all economic news either ceased or was put through a meat grinder. But it has accelerated under the current administration, which seems to be attempting to force through a 50-year restructuring of the US economy in only four years. It ain’t going to happen. They may succeed in breaking the old economy, but it will take decades to rebuild a new one.

All of this makes trading and investing in the stock market much more difficult. It’s like navigating Antarctica without a compass.

Warning: Eventually, the stock market will notice.

February is up +0.25%. That takes my trailing one-year return to +59.06% and, my average annualized return to +50.48%, and my performance since inception reaches a new all-time high of +816.18%. These are all non-compounded numbers.

I took a quick one-day profit on my long in silver (SLV) just before the next collapse in the white metal. The government shutdown got a two-week respite but may resume on February 14. Still no word on the Supreme Court tariff decision, and nobody knows where it went. It may be that the Trump appointees are delaying an adverse decision.

Some 65 of my 79 round trips in 2025 were profitable. That is a success rate of 82%. We were up every month for the second year in a row in one of the most difficult trading years in market history.

Try beating that anywhere.

US Equity Fund Inflows Plunge. Witnessing an easing of demand in the week through February 4 on caution over a selloff in software stocks, although strong earnings from Ely Lilly (LLY) and Super Micro Computer (SMCI) offered some support. Investors bought U.S. equity funds of $5.58 billion during the week, approximately a 48% drop compared with the prior week’s $10.82 billion net inflows.

Weekly Jobless Claims Rocket. Initial claims increased by 22,000 to 231,000 in the final week of January, according to Labor Department data released Thursday. Claims exceeded all estimates in a Bloomberg survey of economists. Continuing claims, a proxy for the number of people receiving benefits, increased to 1.84 million in the previous week.

Layoffs Hit 17-Year High, while hiring hit a new low, according to outplacement firm Challenger, Gray & Christmas, reported Thursday. U.S. employers announced 108,435 layoffs for the month, up 118% from the same period a year ago and 205% from December 2025. The total marked the highest for any January since 2009, while the economy was in the final months of its steepest downturn since the Great Depression.

Bitcoin Crashes, reaching a 15-month low of $58,000, and it may get worse. The Trump bump is gone. Strategy (MSTR) plunged to $104 and is thought to have lost $17 billion so far this year. Avoid all crypto for now.

Amazon Plunges 12%, after missing its fourth-quarter earnings estimates. The e-commerce giant earned $1.95 per share versus the $1.97 analysts polled by LSEG had forecast. On the other hand, its $213.39 billion revenue beat expectations of $211.33 billion. The (AMZN) story is in the same dilemma as all hyperscalers. Namely, the investment community isn’t currently willing to pay a premium to back companies behind the AI build-out.

Shipping Companies are Getting Torpedoed, with the collapse of international trade leading to structural overcapacity. Danish shipping giant Maersk said on Thursday that falling freight rates, driven by container-vessel overcapacity and the gradual resumption of shorter Red Sea routes, could halve earnings in 2026, dragging its shares down sharply. Avoid all shipping plays.

SpaceX Buys xAI for $1.2 Trillion, in the largest merger in history. Musk estimates that within two to three years, the most cost-effective way to generate AI compute will be in space, as Big Tech companies spend hundreds of billions in the pursuit of artificial general intelligence, a theoretical milestone where machines could surpass human capabilities in cognitive tasks. This transaction won’t be open to the public.

Where is the Bottom for Software Stock? After Microsoft’s (MSFT) 12% selloff last week and SAP’s 19% crash, investors are wondering if the suffering will ever end for this sector. It’s more than just AI eating their lunch. Many companies have taken programming in-house and no longer rely on third parties.

Rare Earth Stocks Jump on Trump $12 Billion Stockpile Proposal. The end result is that everyone will have to pay much higher prices for rare-earth dependent parts. Avoid the bubble. The insiders have already made their killing. The problem is that Trump has no money to finance this.

My Ten-Year View – A Reassessment

We have to substantially downsize our expectations of equity returns over the next four years. My new American Golden Age, or the next Roaring Twenties, is now looking at multiple gale-force headwinds. The economy will completely stop decarbonizing. Technology innovation will slow. Trade wars will exact a high price. Inflation will return. The Dow Average will rise by 600% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old. My Dow 240,000 target has been pushed back to 2035.

On Monday, February 9, at 8:30 AM, the Consumer Inflation Expectations are out.

On Tuesday, February 10, at 8:30 AM EST, the ADP Private Employment Report weekly is announced. We also get Retail Sales.

On Wednesday, February 11, at 8:30 AM, the Nonfarm Payroll Report for January is released. Last month’s report was leaked in advance by the President on social media.

On Thursday, February 12, Weekly Jobless Claims are published. We also get the headline Unemployment Rate. There is also the Existing Home Sales.

On Friday, February 13, at 8:30 AM, the Consumer Price Index is printed. At 10:00 AM EST, we obtain the Baker Hughes Rig Count.

As for me, I am writing this to you from the Celebrity Equinox at 65 degrees South latitude, 63 degrees West longitude in the Southern Ocean. It is a frigid 28 degrees Fahrenheit, and there is ice on the outside decks. It snowed last night.

These latitudes are well named as the Roaring Forties and the Ferocious Fifties. The waves today are 15 feet high with a near gale force Southwest wind. A big wave just crashed against my forward window, even though I am on deck 8, about 30 feet above sea level. The pools are all closed because the rocking of the ship has sloshed all of the water out of them.

About 5% of the crew are seasick, all of the newcomers, so some services are limited. As for me, as a combat pilot, I am immune to all types of motion sickness. Once your inner ear learns to deal with violent moves up, down, and sideways, it stays for life.

During the 18^th century, it used to take 75 days to round Cape Horn in a wooden sailing ship. We did it in one day. There is an outstanding book just out on this ordeal: The Wager: A Tale of Shipwreck, Mutiny, and Murder, by David Grann, which is a must-read. Many did not make it. Over 1,000 ships sank here over the centuries.

Among my many illustrious ancestors is Joshua Slocum, the first man to sail around the world alone, which he accomplished in 1899. He did this in a restored 50-year-old oyster boat, the Spray. He heard in advance that natives robbed vessels when passing through the Straits of Magellan.

So when spending the night there, he threw a box of steel tacks on the deck. Sure enough, he heard screaming in the middle of the night and the sounds of men jumping overboard. Then he wrote a book about it, Sailing Alone Around the World. Slocum was finally lost at sea in 1909.

By the time he reached Sydney, Australia, his sails were in tatters. So the British Navy custom-made him a new set. Every time I start an Australian lecture tour, I thank the Australian people for their kind donation to my family some 127 years ago.

I was the oldest of seven children. When I was 13 and my brother 12, my parents had too much on their hands, so they shipped us out from Los Angeles to Sault St. Marie on the Upper Peninsula of Michigan on Greyhound, changing buses in Chicago. Young couples running away from home boarded at night, making straight for the back seat and started making out. I had no idea what was going on.

I spent that summer memorizing the names and signal flags of the great ore ships headed from the rich mines of Minnesota through the Lake Superior locks to the great steel mills of Indiana. The Edmond Fitzgerald was one of those, of Gordon Lightfoot fame. At night, we shared a small single bed under a map of the world. My pillow was under Cape Horn. I used to get to sleep by memorizing the capitals of every country in the world.

Here I am, some 61 years later, and I am finally sailing past the real Cape Horn at the tip of South America. And I learned the origin of its name. The Cape is, in fact, two massive 1,391-foot-high mountainous stone horns, which are unmistakable from a distance.

Another item off the bucket list.

I am sailing on the Celerity Equinox, a huge 121,868 ton, 1,041-foot-long ship that carries 2,900 passengers and 1,300 crew. It’s like someone laid the Empire State Building on its side and floated it down the Hudson. After 50 years of cruising, it has the oldest passengers I have ever encountered. Every elevator is packed with wheelchairs and walkers. Visiting the Sun Deck is not a pleasant experience. No bikini-clad bathing beauties here.

The ship was completed in 2009 and registered in Malta, along with the rest of the Celebrity fleet. There is no labor law at seas so most of the crew come from the Philippines and India, the cheapest labor force in the world, and make $2,000 a month. They work 12 hours a day, seven days a week. One Indian crew member checked me in at the spa and later that night appeared as my waiter in an exclusive restaurant. I see them wandering around in groups on shore days, and they all appear as happy as larks living a career seeing the world that most can only dream about.

After sailing to the Caribbean, the Mediterranean, Northern Europe, Alaska, and the Norwegian Fjords, one heads for Antarctica. There are also many Europeans here who cancelled American vacations for the more welcoming shores of Argentina, from where our cruise originated.

We spent a day at Paradise Bay, the farthest South point of the trip, to watch the calving of giant icebergs. I didn’t think much of it, but then one much larger than the ship drifted by. We watched this from the forward helipad, where the ship put on a Champagne party. Whenever a whale breached, the drunken crowd cheered.

Antarctica is quite a large continent, much bigger than the United States. If all the ice here melted, global sea levels would rise by 200 feet. There are 80 permanent research stations manned by 40 countries. The military and commercial mining are banned by treaty. I once tried to organize an expedition to climb the 16,050-foot Mt. Vinson, the highest mountain on the continent, but it proved too expensive, and there were few volunteers.

I’ll be watching the Super Bowl on the big screen in the 1,000-seat Equinox Theater later today, thanks to Starlink, part of SpaceX. The ship has ten Starlink dishes on the roof, as do all cruise ships today, which have only become available in the past year. That’s how I was able to keep in close touch with the financial markets, even though I was only 1,300 miles from the South Pole.

There is no hiding from the markets anymore.

Excuse me, but I have to go now. I can’t be late for my tango lesson.

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader