Dip Buying Continues, But a Shift May Be Coming Goldman Says The S&P 500 initially fell as much as 1.1% on Wednesday after a hotter-than-expected consumer price index (CPI) report. However, the losses didn’t last, with the index recovering to close down just 0.3%. Scott Rubner, a tactical strategist at Goldman Sachs, attributes the swift rebound to one key factor: retail investors buying the dip. “Retail was buying the early morning dip post-CPI,” Rubner wrote in a client email. “Everyone is in—retail traders, 401(k) inflows, start-of-the-year allocations, and corporate buybacks.” However, Rubner believes this bullish momentum may be nearing its end. “This is the last bullish email I will send for Q1 2025,” he warned, citing shifting market dynamics and the arrival of negative seasonal trends. The E-Mini S&P 500 futures contract is hovering near its 50-day moving average, testing key technical levels. Rubner’s analysis suggests that commodity-trading adviser (CTA) trend followers have more selling pressure ahead if the market declines than buying support if it rises. January and February typically bring strong inflows into 401(k) and 529 plans, but that tailwind is expected to fade soon. Meanwhile, corporate stock buybacks are on pace for a record $1.16 trillion this year, though activity is likely to slow after March 16. Retail investors have been net buyers for 22 consecutive days, including three of the largest buying days on record. But Rubner cautions that this level of demand may not be sustainable for much longer.

BCA Research Signals Bitcoin May Have Peaked as Profitability Hits Historic Levels Bitcoin’s recent price action suggests a potential market top, according to analysts at BCA Research. They highlight that the percentage of bitcoin in profit has reached levels historically associated with previous peaks. After hitting a record high on Jan. 20—coinciding with former President Donald Trump’s inauguration—bitcoin has since declined 10%. While such volatility is common, BCA Research, which has maintained a bullish stance over the past two years, is now expressing caution. Juan Correa, a strategist for global asset allocation at BCA, points to several red flags. One is Trump’s direct involvement in launching two low-float memecoins, which BCA analysts see as a sign of speculative excess rather than a broadening of crypto adoption. Although memecoins account for less than 2% of the total crypto market and are largely avoided by institutional investors, their rise reflects a broader surge in optimism toward digital assets. Bitcoin ETFs have become the most successful in history, and BlackRock CEO Larry Fink has suggested that major investors may allocate up to 5% of their portfolios to bitcoin, even speculating on a potential price target of $700,000. “We are concerned that this level of euphoria signals we are near a top,” BCA analysts warn. They emphasize that over 90% of bitcoin supply is currently in profit, a historical marker that has often preceded market peaks. Additionally, eight of the ten most downloaded financial apps are crypto trading platforms, further indicating speculative fervor. Macroeconomic risks also loom. BCA notes that if government deficit spending is lower than expected, it could dampen bitcoin’s rally. “A U.S. economy that is both cooler and more fiscally responsible than anticipated may not support bitcoin’s recent surge,” they explain. Despite their cautious outlook, BCA remains structurally positive on bitcoin’s long-term role in a diversified portfolio. However, they caution that sentiment-driven rallies can lead to unsustainable price levels. “We would be more enthusiastic buyers at $75,000,” they state. One factor that could challenge their bearish view is Trump’s proposal for a strategic bitcoin reserve, which would involve holding crypto assets seized by law enforcement. “While this might provide a short-term boost, in our view, it would likely mark the top of the cycle,” BCA notes. Reflecting the current speculative environment, BCA has even launched its own satirical memecoin, Liquidity Trap. “The name is both a nod to our firm’s historic work on liquidity and a literal warning—any money put into this coin will almost certainly be lost forever,” they quip.

Who Controls 10-Year Yields? The Market Has the Final Say, CIO Says Federal Reserve Chair Jerome Powell may find some relief in the Trump administration’s latest focus on 10-year Treasury yields rather than pressuring the Fed for rate cuts. However, this shift in strategy has sparked fresh concerns among market participants. Treasury Secretary Scott Bessent outlined the administration’s stance in interviews with Fox Business Network’s “Kudlow” program on Wednesday and Bloomberg Television on Thursday. Bessent emphasized that both he and Trump are concentrating on the 10-year Treasury yield (TMUBMUSD10Y 4.484%) rather than urging the Federal Reserve to cut interest rates. He also stated that the 10-year rate should decline “naturally” as a result of Trump’s economic policies. While this reassured some that the administration would not interfere with the Fed’s independence—particularly after Trump’s January 23 demand for immediate rate cuts—others raised concerns about obstacles that could prevent lower yields. These include the inflationary impact of tariffs and the projected $2 trillion U.S. budget deficit for the 2024 fiscal year, which signals continued heavy Treasury issuance. Mark Malek, Chief Investment Officer at New York-based wealth advisory firm Siebert, underscored a key point in an email: “Who is in control of 10-year yields? The answer is quite simple: THE MARKET. It is the market that has pushed 10-year yields higher recently. Bond vigilantes, if you will. These yields have risen due to expected inflation from trade frictions, increased deficit spending, and rising government debt.” The 10-year Treasury yield, a key benchmark for borrowing costs—including mortgages, auto loans, and student loans—has surged more than a full percentage point, reaching 4.802% on January 13, up from 3.622% on September 16. On Thursday, it settled just below 4.44% after a week of declines following Trump’s announcement of new tariffs on Mexico and Canada and subsequent delays. Malek acknowledged that the administration could theoretically drive yields lower by persuading the Fed to buy 10-year Treasury notes in the open market, a process known as yield-curve management. However, he considers such intervention unlikely. Historically, Japan employed yield-curve control until recently, targeting short-term rates near -0.1% and keeping its 10-year yield close to zero. Similarly, during and after World War II, the U.S. used yield-curve control from 1942 to 1951 to finance war debt. Another potential strategy, Malek noted, would be for the Treasury Department to repurchase long-term Treasurys while issuing short-term debt, akin to the Fed’s 2012 Operation Twist program. However, such moves are complex and may have limited long-term effectiveness. Despite Bessent’s comments, Thursday’s trading session showed a modest rise in Treasury yields across 2-year (TMUBMUSD02Y 4.275%), 10-year, and 30-year (TMUBMUSD30Y 4.692%) bonds, suggesting limited market reaction. Meanwhile, stock indices finished mixed, with the Dow Jones Industrial Average (-0.99%), S&P 500 (-0.95%), and Nasdaq Composite (-1.36%) posting declines. Gregory Faranello, Head of U.S. Rates Trading and Strategy at AmeriVet Securities, acknowledged that targeting longer-term rates to lower borrowing costs is a “sound” approach but emphasized the need for precision in execution. “In a nutshell, it is hard to have your cake and eat it too,” he said, noting that bond yields typically decline when tariff policies are softened. Faranello pointed out that with economic growth running above trend at 2% to 2.5% and inflation at 2.5% to 3%, there is limited room for rates to drop significantly. “If we can bring energy prices down, rates should follow on both the long and short ends,” he said. “That should be the real focus—energy prices, policy, and supply. But introducing other variables, like tariffs, complicates market interpretation.” The sheer volume of government debt issuance each month also makes it difficult to sustain lower rates, he added. While an Operation Twist-style program remains a possibility, Faranello questioned its effectiveness. “I’m not convinced it makes a ton of sense given its limitations and the relatively minor long-term impact of such operations. The biggest driver of interest rates remains inflation.”