Was Friday's Recovery a Short Covering Rally?

*Analyzing the markets with Richie Naso, a Wall Street veteran of over 40 years and former member of the NYSE.

• S&P 500 52-wk: +11.80% YTD: -0.14% Wkly: -1.39%
• DJIA 52-wk: +11.12% YTD: +2.99% Wkly: -1.23%
• NASDAQ 52-wk: +12.58% YTD: -0.91% Wkly: -1.84%
• Roundhill Mag Seven ETF 50-WK: -2.99% YTD: -20.08% Wkly: -2.10%
• Russell 2000 (small caps) -0.9%

(Figures correct as of Market Close 13th Feb 2026)

1. Economic Data & Inflation

• January CPI came in cooler than expected (headline ~2.4 % year-over-year), briefly lifting sentiment as inflation pressures appeared to ease. That raised some bets for future Federal Reserve rate cuts.
  

2. Sector Rotation & AI Concerns

• Tech and AI-linked stocks underperformed, as fears of disruption from artificial intelligence spending and slowing growth weighed on software and mega-caps.
• Defensive and “old economy” sectors like utilities, materials, and energy outperformed relative to tech.
  

3. Individual Movers

• Applied Materials jumped on better earnings and outlook.
• Rivian surged strongly after upbeat results and product news.
• Other names like Coinbase saw rebounds after recent weakness.
  

4. Volatility & Sentiment

• Markets were choppy midweek, with selling pressure easing into Friday after the CPI report.
• Traders trimmed risk ahead of the weekend and a short Presidents Day holiday.
  

5. Sector & Asset Highlights

• Utilities and Materials: strong weekly gains as defensive flows increased.
• Financials and Communication Services: lagged.
• Treasury yields fell, signaling a flight to safety.
• Gold and safe-haven assets saw strength as equities softened.

Index: Russell 2000

Year-to-Date Return (2026): + ~6.6%

Index: Nasdaq Composite

Year-to-Date Return (2026): ~ –3.0%

This divergence reflects the rotation away from big tech toward smaller, domestic-oriented stocks early in the year.

Credit Card Delinquency (90+ Days)

• As of the fourth quarter of 2025, delinquency rates on consumer credit (which includes credit cards) rose modestly to multi-year highs, pushing overall household credit stress up. Reuters
• According to some recent analyses and reports, the share of credit-card loans that were at least 90 days delinquent rose significantly, with some estimates approaching double-digit levels (~12–13%), near peaks not seen since around 2011. Reddit
  

Key takeaways:

• Credit card debt ($1.3 trillion) is increasing, and delinquencies are trending higher. Barron’s
• This suggests rising stress in consumer credit repayment, especially in unsecured debt categories (like credit cards). Barron’s
  

Auto Loan Delinquency (90+ Days)

• The same New York Fed household debt report showed that auto debt held about $1.7 trillion and that credit trouble was rising in lower-income segments. Reuters
• In addition, anecdotal and sampled data (e.g., LendingTree) suggested auto loans had a smaller but still noticeable delinquency profile, with around:
  • ~0.9% of borrowers were 90–120 days late as of early 2025, and
  • A subset (a few percent) of total auto loan holders were delinquent at various stages. Lending Tree
• Other broader estimates put 90+ day delinquency around ~5% for auto loans in recent periods — approaching levels seen in earlier credit stress cycles. Reddit
  

Key takeaways:

• Auto loan delinquency is elevated relative to historical lows but not nearly as extreme as credit card delinquencies.
• Subprime borrower delinquencies on auto loans have been particularly pressured. Mish Talk
  

Hasbro Stock Still Has Room to Run

Move over, Barbie and Hot Wheels. Kids—and probably a decent number of adults—are now playing Magic: The Gathering and Dungeons & Dragons. That’s great news for Hasbro HAS, which owns both role-playing games, and an awful development for Mattel MAT, the parent company of the iconic doll and toy car brands.

Hasbro and Mattel, which both reported earnings on Feb. 10, are going in different directions. Hasbro posted fourth-quarter results that topped forecasts, while Mattel’s sales missed analysts’ expectations. Shares of Hasbro are now up nearly 25% in 2026 and are trading at a multiyear high, while Mattel’s stock tumbled almost 25% on its poor earnings. But the good times for Hasbro may not be over just yet.

Six Wall Street analysts boosted their price target on Hasbro after its earnings, according to FactSet. Eric Handler, at ROTH, was one of them, lifting his price target to $120, 17% above the current price. He noted that the popularity of role-playing games is increasing and they are no longer a niche product for a small group of hardcore players. Fourth-quarter sales for Hasbro’s Wizards of the Coast and its digital-gaming unit, home to Magic, D&D, and other role-playing franchises, soared 86% from a year ago.

“The expansion of the casual player base is proving sticky,” Handler wrote in a report.

Hasbro is benefiting from traditional toys, too. CEO Chris Cocks noted on the company’s earnings call that the company’s partnership with Walt Disney is poised for a big year thanks to the coming releases of Toy Story 5, Star Wars: The Mandalorian and Grogu, and the Marvel movies Spider-Man: Brand New Day and Avengers: Doomsday. Hasbro could also get a boost from recently announced licensing deals with HBO to make toys tied to the coming Harry Potter series as well as action figures for the live-action Voltron movie from Amazon

It’s true investors have caught on to the fact that Hasbro is winning the toy wars. The stock is up 70% over the past year. But shares still trade for just 18 times forecasted earnings for the next 12 months, a 19% discount to the S&P 500’s multiple of 22 times. According to FactSet, Hasbro has typically traded at just an 8% discount to the broader market over the past decade. So there is upside potential if that gap narrows.

Management is upbeat too. Hasbro Chief Financial Officer Gina Goetter told analysts that “supply-chain productivity nearly offset the cost of tariffs” in the fourth quarter and that tariff costs in the second half of 2026 should be relatively unchanged compared with a year ago. The company also just announced a new $1 billion stock buyback program. UBS analyst Arpine Kocharyan, who has a Buy on Hasbro, said in a report that “this will likely be viewed as a vote of confidence in [the] sustainability of earnings.

Hasbro may not have a monopoly in the toy business. But the famous board game maker might as well be one for investors. Hasbro is in much better shape than Mattel, and that should lead to more fun times ahead for the stock.

1) Economic Data Releases

Certain reports have outsized market influence:

• Inflation-related data Watch for:
  • PPI (Producer Price Index)
  • Any regional inflation surveys These can shift rate expectations and bond yields.
• Retail sales or consumer confidence Tell us how consumers are spending — critical for growth forecasts.

Why it matters: Markets have been reacting strongly to signs of slowing inflation vs sticky prices — any surprise can drive big sector rotation.

2) Fed Speakers / Rate Expectations

Fed officials often speak in the week after CPI, and markets are tuning ears for:

• Hints on future rate cuts or holds
• Language on economic strength vs weakness
• Views on inflation persistence

Even subtle tone changes can swing:

• Tech stocks
• Financials
• Treasury yields

3) Earnings from Key Companies

Earnings season continues — focus on:

• Mega-cap tech earnings
• Companies with guidance changes
• Retailers and consumer discretionary stocks

Watch for:

• Revenue beats or misses
• Profit guidance raise/cut
• Cost pressure commentary

High volatility ahead of earnings is common, especially in tech names.

4) Sector Rotation Signals

Recent trends show:

• Rotation into defensives (utilities, staples, energy)
• Relative weakness in growth/tech

Metrics to watch:

• Relative strength of small-caps vs large-caps

Leadership changes across sectors (e.g., materials, financials)

5) Bond Yields

Yields influence equity valuations — look at:

• 10-year Treasury yield direction
• Any big moves in the curve (flattening/steepening)

Rising yields often:

• Weigh on high-multiple stocks
• Benefit financials

Falling yields often:

• Boost defensives
• Signal economic slowing

6) Volatility Index (VIX)

A rising VIX often precedes:

• Correction risk
• Sector rotation into safer assets

A falling VIX suggests:

• Confidence returning
• Reduced hedging demand

7) Technical Levels

Pay attention to key price points on major indexes:

• S&P 500 support/resistance
• Nasdaq composite trend lines
• Russell 2000 levels

Breaks of major technical levels can trigger:

• CTA systematic flows
• Stop-loss cascades

8) Geopolitical / Macro Headlines

Markets still react to:

• Global central bank actions
• Trade developments
• Geopolitical tensions

Even non-economic headlines can create swings, especially in risk assets.

9) Market Breadth & Internals

Lead indicators for broader trend health:

• Advance vs decline line
• New highs vs new lows
• Volume patterns on up vs down days

If breadth narrows while indices rise, that’s a warning sign

It was encouraging to see that Friday’s selloff in ES futures held above 6800, with the low at 6808.75. The 6800 level is a major support area, reinforced by a significant option “put wall” positioned there.

That said, the billion-dollar question remains: was the subsequent rally primarily driven by short covering, or was it a combination of short covering and genuine dip buying?

– Richie

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