How Much Power Do Headlines Really Have Over Markets?

Markets are swinging sharply as headlines and social media posts appear to drive sudden surges and reversals. We break down whether this is a headline-driven market, what weakening technicals signal, and why the 200-day moving average matters now.

Summary – IBKR Podcasts Ep. 365

The following is a summary of a live audio recording and may contain errors in spelling or grammar. Although IBKR has edited for clarity no material changes have been made.

Andrew Wilkinson: Welcome to this week’s Market Minute with me, Andrew Wilkinson, and my guest, Kevin Davitt from the Nasdaq. Kevin, welcome back to the program.

Kevin Davitt: Thanks for having me back.

Andrew Wilkinson: Let’s get straight into it. Markets started to sink at the end of last week, with certain technical factors—ones we’ll get into later—coming into play. However, that Truth Social post from President Donald Trump at the start of trading on Monday sent futures markets surging, and equity prices moved sharply higher. Kevin, what feedback did you hear from traders?

Kevin Davitt: There are so many different ways you could look at it. My primary feedback—and I’ve spoken with a handful of people active in the markets—was around energy, and the extent to which, particularly over the past month, energy prices have been almost perfectly negatively correlated to equity prices.

What do I mean by that? When energy goes up, equity prices and indices tend to trend lower, and vice versa. Crude oil, as well as Brent, both fell precipitously following that Truth Social tweet—or whatever they’re called—and energy prices rallied.

The other part of it, or the other rumblings I heard—and I think others shared this view—was that the close yesterday was pretty weak. There was no follow-through on that initial knee-jerk rally. Despite a number of metrics going into standard or quarterly expiration last week, and breaking through some important technical levels, we simply didn’t have enough momentum to push higher beyond about 2%. The Nasdaq 100 closed a little more than 1% higher, and we’re seeing similar dynamics today.

If you watch the markets day after day, rather than intraday, it can seem like nothing is happening. But there are many days with fairly significant swings that don’t close at either extreme. It’s been quite a volatile few weeks in the markets.

Andrew Wilkinson: It certainly has. I continue to be blown away by the fact that one person’s tweets can move markets to this extent, without much thought given to what’s actually being said. Did anything stand out to you from Monday’s session? Are there any clues about the stickiness of the rally?

Kevin Davitt: I think the way I look at it is almost as a mirror of what we saw on Friday. The prior session was one of the worst breadth and volume down days for the broad market in quite some time, and that was largely reversed yesterday.

Looking at just the Nasdaq 100, only about eight of the 101 tickers in the index were lower. That kind of breadth—so much participation on the upside—is unusual. And we saw similar dynamics across other indices.

But that can also be confusing. The broader trend over the past six weeks has been lower lows and lower highs, with a lot of intraday volatility in between. From my perspective—and I’m not saying we necessarily need it—there hasn’t really been a signal of broader capitulation, though sometimes you do get those.

Andrew Wilkinson: As you mentioned, the Nasdaq and the S&P 500 both fell below their respective 200-day moving averages. How concerned does that make you?

Kevin Davitt: It does make me concerned, and I don’t think I’m alone. That said, I don’t want to lean too heavily into fear or place too much weight on a single long-term support level. Historically, it mattered more when there were more active investors with rules-based triggers for de-risking, and the 200-day moving average was often one of them.

In today’s market environment, there are more systematic, rules-based participants—CTAs, for example—and they tend to be trend-following, so their triggers may or may not align.

The only time the Nasdaq 100 has been below its 200-day moving average over the past two years was during the risk-off period in March and April of last year, driven largely by tariff concerns. Before that, you’d have to go back to 2022 for both the last occurrence and the longest stretch below that level. The S&P and other indices show a very similar pattern.

The longer we stay below that level, the more concerned I become about an environment resembling 2022. For those who may be newer or a bit removed from that period, we had significant inflation concerns, compounded by the Russia-Ukraine escalation, which is still ongoing. More recently, geopolitical tensions have again raised inflation concerns.

At that time, tech valuations were at the epicenter, and we’ve since seen a washout across much of the software sector. It hasn’t been as broad-based as in 2022, but to sum it up: if we can’t reclaim the 200-day moving average relatively quickly, my concern—without overstating it—continues to build.

Andrew Wilkinson: And just to remind the audience, last week—available on IBK webinars—Kevin delivered a fantastic 45-minute session on whether this bull market is set to rebound or turn into something else.

Kevin Davitt: Yeah.

Andrew Wilkinson: Go and check it out—

Kevin Davitt: Thank you for that.

Andrew Wilkinson: It’s well worth your time. Kevin, I’ll let you get back to what you do best at the Nasdaq. Thanks for joining me.

Kevin Davitt: Thanks for having me.