Wall Street Daily (February 28): US stocks closed lower across the board on Friday, Nasdaq fell over 3% in February, market sentiment remains cautious; PPI data surge slashes rate cut expectations, US-Iran tensions boost gold/oil prices

Summary: US stocks closed lower across the board on Friday, ending February on a gloomy note. The S&P 500 fell 0.43%, Nasdaq dropped 0.92%, Dow Jones plummeted 1.05%, and the Russell 2000 small-cap index tumbled 1.68%. The Nasdaq fell over 3% in February, marking its worst monthly performance since March of last year. Market sentiment overall leaned cautious but has not reached extreme panic. The VIX rose for two consecutive days, surging 6.60% in a single day to close at 19.86, approaching the 20 mark but failing to break through. January's PPI data significantly exceeded expectations, with core PPI rising 0.8% month-on-month, far above forecasts. The probability of a May rate cut plunged from 65% to less than 15%, sending shockwaves of sticky inflation fears across Wall Street. In major asset classes, the deadlock in US-Iran nuclear negotiations fueled safe-haven demand, with gold skyrocketing 1.84% to approach $5,230 per ounce and crude oil jumping 2.78%; Bitcoin retreated alongside risky assets, falling 2.39%.

I. Major Events

1. January's PPI data comprehensively beat expectations, dealing a heavy blow to rate cut expectations

The Producer Price Index (PPI) for January rose 0.5% month-on-month, with core PPI soaring 0.8%, both significantly higher than market expectations of 0.3%. Among them, the rise in service prices by 0.8% was the main driver. Core PPI for the full year accelerated to 3.6%. Following the release of the data, the pricing probability for a May rate cut in the federal funds futures market plummeted from 65% to less than 15%. Meanwhile, expectations that “the Fed will keep rates unchanged at 3.50%-3.75%” were further solidified. Sticky inflation showed no signs of easing, compounded by market concerns that tariff policies could push up import costs, pressuring risk appetite throughout the day, with high-valuation assets bearing the brunt of the impact.

2. Trump bans Anthropic, AI collides head-on with defense

Trump signed an executive order requiring all federal agencies to immediately stop using Anthropic technology. Defense Secretary Hegseth announced it as a 'supply chain security risk' — a penalty level typically reserved for adversarial companies like Huawei. The trigger was Anthropic's refusal to remove safety barriers in the Claude model for military use. CEO Amodei stated, 'We cannot facilitate large-scale surveillance or unmanned weapon firing.' Claude is currently the only AI model deployed in the US military's classified systems, with a six-month transition period set. This incident, along with Block’s 40% layoffs, deepened market anxiety about the AI industry.

3. US-Iran nuclear talks have reached a deadlock, causing both crude oil and gold to soar

Indirect nuclear negotiations between the US and Iran in Geneva have stalled due to Washington's insistence on 'zero uranium enrichment.' Talks are postponed to next week. Trump has already ordered a troop increase in the Middle East, with geopolitical risk premium of about $8 to $10 per barrel priced into oil. Brent crude broke through $72, while WTI settled at $67. Markets are reassessing supply risks in extreme scenarios: if the Strait of Hormuz (a chokepoint for about 20% of global oil supply) is blocked, analysts warn oil prices could spike to $95-$110. Safe-haven sentiment also rose, pushing gold near $5,230 per ounce.

II. Major Trends

From a three-month perspective, the trend of 'value outperforming growth' continues: SPYV gained 6.96%, while SPYG rose only 1.14%. Growth stocks showed more weakness in the short term (SPYG fell 2.34% over two weeks, compared to SPYV’s 0.98% decline). Higher-than-expected PPI further squeezed expectations for rate cuts, exposing duration risk for high-valuation growth stocks once again.

Small-cap stocks (IWM) still lead the four major indices with a three-month gain of 10.94%, but short-term pullbacks are accelerating—down 2.39% over two weeks. Momentum indicators also show an accelerated downtrend (previous period -1.06%, this period speeding up to -2.39%). Against the backdrop of persistent inflation stickiness and rising concerns over credit tightening, small caps, being more interest-rate sensitive, are more likely to be 'sold off first' by the market.

Market breadth remains positive: the equal-weighted RSP gained 9.09% over three months, significantly outperforming the market-cap-weighted SPY (3.85%), indicating that funds are not just concentrated in a few giants. However, the tech giant ETF (MAGS) fell 3.51% over two weeks, signaling a release of concentration risk at the top, echoing the 'great rotation' narrative—while the S&P appears calm on the surface, it is undergoing more intense sector rotation internally.

III. Market Sentiment

Several indicators suggest cautious market sentiment, but not yet extreme panic. The VIX closed at 19.86, surging 6.60% in a single day, nearing the 20 threshold but not breaking through. Two consecutive days of increases reflect accumulating pressures from inflation concerns and tech pullbacks. The CNN Fear & Greed Index stood at 43 (previously 42), continuing to hover at the lower end of the fear zone.

In terms of market breadth, the NYSE Advance-Decline Line moved upward against the trend, the McClellan Oscillator improved, and the TRIN indicator was 0.87, leaning bullish—despite index declines, most individual stocks were actually rising, confirming the view of 'index distortion, internal health.' The CBOE equity options Put/Call ratio was around 0.61, with bullish trading still dominant, but the overall Put/Call ratio rose back to 0.90, close to neutral, showing increased demand for index hedging. The AAII retail sentiment survey showed the bullish proportion dropped to 33.2%, below the historical average of 37.5%, marking the second time in 13 weeks it fell below the average.

IV. Market Scan

1. Index ETFs

All four major index ETFs closed lower. QQQ fell slightly by 0.32%, a relatively mild drop—Netflix's surge eased the negative sentiment caused by tech stock selling pressure. The Dow ETF (DIA) fell 1.05%, weighed down mainly by a collective downturn in financial heavyweights. IWM led the declines with a 1.72% drop; higher-than-expected PPI sharply reduced rate cut expectations, hitting interest-rate-sensitive small caps first, with cumulative pullbacks reaching 2.39% over two weeks.

2. Sector Performance

Sector performance diverged sharply, presenting a typical 'risk-off switch' pattern. Healthcare (XLV) led gains with a 1.77% rise as inflation concerns made defensive attributes more appealing to capital. Energy (XLE) rose 1.58%, driven by rising oil prices amid the US-Iran nuclear negotiation deadlock, boosting energy stocks. Consumer Staples (XLP) gained 1.29%, Utilities (XLU) rose 1.17%—the three traditional defensive sectors collectively strengthened. Communication Services (XLC) rose 1.14%, primarily lifted by Netflix's surge.

The biggest declines came from Technology (XLK), which fell 1.60%, as NVIDIA’s consecutive pullbacks combined with AI-related anxiety weighed on sector sentiment. Financials (XLF) fell 2.04%, bottoming the list, impacted by credit risk events, legislative progress, and the finalization of Basel III capital requirements, with major banks generally dropping over 5%.

3. The Magnificent Seven Tech Stocks

Netflix surged 13.77%, standing out from the crowd. After the company withdrew from the $1 trillion bidding war for Warner Bros Discovery and received a $2.8 billion breakup fee, the market interpreted this as 'a stronger emphasis on capital discipline,' and sentiment quickly escalated. On the flip side, NVIDIA continued to decline by 4.16%, marking its second consecutive day of losses after earnings. Despite Q4 revenue of $68.1 billion, a 73% year-over-year increase, and Q1 guidance of $78 billion surpassing expectations, concerns over slowing growth and the sustainability of AI capital expenditures persist, keeping pressure on the stock. Apple fell 3.21%, hit by both an expanded antitrust investigation and analysts downgrading their ratings. Microsoft dropped 2.24%, following the overall weakness in the tech sector.

4. Chinese Equities

Chinese stocks faced broad pressure, but declines were contained. NetEase fell just 0.41%, showing relative resilience, supported by its overseas gaming business providing defensive backing. Alibaba dropped 2.66%, with lingering geopolitical risks after being added to the U.S. 'government watchlist,' compounded by market caution ahead of its March 5 earnings report. Futu Holdings Ltd led declines among Chinese stocks, falling 2.92%, as brokerage stocks are more sensitive to market sentiment and pullbacks in high-Beta assets.

5. Cryptocurrencies and Related Stocks

Bitcoin fell below $66,000, dropping 2.39% in a day. Amid impacts from inflation data dampening rate-cut expectations, rising geopolitical uncertainty, and deleveraging in risk assets, crypto assets weakened in tandem. Multiple rounds of forced liquidations since February and continuous outflows from ETFs have made it harder for the downturn to reverse quickly.

Mining companies showed rare divergence: MARA Holdings rose 5.80%, announcing a joint venture with Starwood Digital Ventures to transform its mining operations into an AI data center campus (with a near-term target of 1GW). Investors welcomed the move to reduce reliance on single mining operations. Riot Platforms, however, fell 4.68%, as its pure mining model faced greater pressure during the cryptocurrency price downturn.

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