6 Forces Behind Today’s Market Volatility | S3 E120 | 02-10-26

Markets are off to a volatile and unstable start in 2026 —but why?

In today’s Markets with Megan, Megan Horneman walks through the six key forces driving market volatility, explaining how economic data, policy uncertainty, and shifting investor behavior are colliding across asset classes.

What 6 forces are shaking the markets?

1️⃣ A weakening labor market
Job openings have fallen to their lowest level since 2020, while January layoffs surged nearly 120% year over year, raising concerns that labor market cracks are widening.

2️⃣ Rising AI capital expenditures pressuring big tech
Heavy investment in AI by major hyperscalers has increased scrutiny around returns on capital, creating volatility in once-dominant tech stocks.

3️⃣ A rotation away from mega-cap leadership
Investors are moving toward small- and mid-cap stocks, with the equal-weighted S&P 500 outperforming the market-cap-weighted index — contributing to choppy market action.

4️⃣ Seasonality and midterm election uncertainty
February is historically one of the weakest months for the S&P 500, and midterm election years tend to bring deeper drawdowns and heightened volatility.

5️⃣ Federal Reserve leadership and balance-sheet concerns
Markets are reacting to uncertainty around the Fed’s future direction, particularly fears of aggressive balance-sheet reduction and its impact on liquidity and credit markets.

6️⃣ A slowing, debt-strained consumer
Disappointing December retail sales, slowing discretionary spending, and rising delinquencies across credit cards, auto loans, and student debt are signaling pressure on consumer-driven growth.

📉 With volatility hitting equities, commodities, and Bitcoin, Megan explains what these forces mean for economic growth, market leadership, and investor positioning in the months ahead.

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Disclaimer:  material was prepared by Verdence Capital Advisors, LLC (“VCA”). VCA believes the information and data in this document were obtained from sources considered reliable and correct and cannot guarantee either their accuracy or completeness. VCA has not independently verified third-party sourced information and data. Any projections, outlooks 
or assumptions should not be construed to be indicative of the actual events which will occur. These projections, market outlooks or estimates are subject to change without notice. This material is being provided for informational purposes only and is not intended to provide, and should not be relied upon for, investment, accounting, legal, or tax advice. Past performance is not a guarantee of future results. Different types of investments involve varying degrees of risk, and there can be no assurance 
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Transcript

Setting The Stage: Volatile 2026

Megan Horneman 0:00

It's been quite a volatile start to 2026. It is Tuesday, February the 10th, and this is Markets with Megan. If you like this podcast, subscribe, hit the alarm bell, share it with your friends, family, or colleagues, anybody who wants to kind of get into the depths of what's going on in the market. What does the economic data mean? And how can we start to dissect some of the market moves that we've seen this year, especially some pretty violent ones across some different investments? So let's start first with addressing the volatility we've seen to start off this year. And we think there's really six different factors that have contributed to the up and down swings we've seen in the market. And don't forget that volatility comes in both in a lot of different shapes and sizes. And you can have upside volatility just as much as you can have downside volatility. Now, what we've seen is that you know investors have been whipped sold on a daily and even in an intraday basis, not just in equities, but in commodities, and also the the once beloved investment of Bitcoin. When you look, it starts with the economic data. Um, first of all, we are starting to get further signs of weakening in the labor market. We got a bunch of data last week. Um, the job openings that from the Joltz report, they're the lowest since 2020. And then according to challenger Gray in Christmas, who keeps a log of the amount of layoffs that are announced publicly, we saw layoffs rise in January by almost 120% on an annual basis. And that is the worst January since 2009. Um, capex spending continues to accelerate on AI, but we're seeing those big hyperscalers, your Microsoft, your Amazon, um, Meta, these companies being actually punished for increased CapEx spending plans for this year. We've seen their stocks pretty volatile. The rotation out of tech that has continued to grow. It doesn't mean that tech's necessarily negative, it just means that people are looking for value elsewhere. So we're seeing, for example, the Russell 2000 and 2500 beating the SP 500. You're also seeing um the equal cap weighted index of the SP 500. That um was beating the market cap weighted index by about 425 basis points by the end of last week. Um, seasonality does play a part. February is historically the second worst month on record for the SP 500, and it's only been positive about 50% of the time. And then don't forget it's a midterm election year. So there tends to be quite a bit of volatility in the markets ahead of the midterm election. In fact, the average maximum drawdown in the SP 500 in a midterm election year is about 18%. And the annual return is much lower in a year that we hold a midterm election versus years that there are not midterm elections. Lastly, the big thing that's really caused a lot of concern in the market is President Trump's pick for the uh FOMC chairman. Kevin Warsh is an extraordinarily talented individual, very smart, served on the Federal Reserve during the great financial crisis. So on paper, he has a he's a fantastic choice. We tend to like the fact that he takes inflation seriously, and we do think that the Fed has been way too dubbish on inflation. But where the markets are getting concerned is he was very vocal back in the great financial crisis about the dangers of expanding the Fed balance sheet. So if he comes in and aggressively reduces the Fed balance sheet, if this is done in a way where we lose some of the liquidity or stability in the money markets or in credit markets, that can create a bigger problem, especially in the equities. So you've seen some things like credit, uh, leverage loans, these things get hit with his pick from a nomination. And we want to be clear that uh, you know, balance sheet where it is for the Fed, this is not sustainable. And it we do need to address this and have someone who has the courage to tackle this in a way where we can keep the markets stable as well. So let's dig into the second topic today, and that's with the monthly retail sales data that we got for the month of December. And remember, the consumer makes up the majority of GDP. So if the consumer weakens, we do tend to see the outlook for the economic growth weaken. And what we saw was whether you look at retail at the headline level, whether you exclude food, autos, gas, building materials, all of these indicators were much lower than anticipated in December. The big drop was seen in a lot of the discretionary items. In fact, discretionary spending, when we isolate that out of the report, it's growing at the slowest annual rate in about 14 months. So you're looking at a big drop in things like motor vehicles, furniture, electronics, and clothing. Now, because of this report that we got at the end of December, remember it's not inflation adjusted. So if inflation was put in here, these numbers would be even weaker. But we have seen that the Atlanta Fed GDP now estimate for fourth quarter has gone down from above 5% now to just 3.7% for the quarter. Still a great quarter, but we are seeing the impact of a weaker consumer and what that means. And speaking on the weak consumer, looking at the the Federal of New York's quarterly report on debt and credit, we saw that delinquencies are at the highest level now since 2017, primarily focused on the low-income and the low income and the young workers. These delinquencies are across a lot of different areas of the market. Credit cards, those that are 90 days plus, rose 13%. They're sitting at the highest since 2011. Auto delinquencies are at the highest since 2010. And student loan delinquencies, they are at 16%. That's the biggest increase that we've seen on record. Now, will the Trump, you know, the one the one big beautiful tax bill help when we start to roll out some of these tax-free funds? Yes. And hopefully they're used to pay down some of this debt, but it does show a consumer that still is being very bogged down by the ongoing rise in inflation that just keeps compounding year after year and a weakening in the in the labor market. That's all we have today. We'll be back with some more economic data this week. And if you want a history of our podcast, you go to marketswithmegan.fm. Thank you.