At 4:25 p.m.:

Breadth

Heat Map

There was nothing new that I saw in the minutes, relative to what we’ve heard from Powell at his presser and the countless Fed speeches since. But, the 2 yr yield is quietly back to a 3 week high at 4.88% as the timing of a rate cut keeps getting pushed out.

Here are some other notables on defining ‘restrictive’, the commentary on inflation and the labor market. Also, what the plan is with the balance sheet and a one sentence throw in to keep us on our toes and part of the Fed push back of cutting rates sooner rather than later.

The bottom line, "play it by ear" is the stance of monetary policy right now.

The use of the word ‘restrictive’ by some Fed members with regards to policy is code word for ‘no more hikes’ with a lean to cutting but asking them to define ‘restrictive’? Not so easy. “A number of participants noted uncertainty regarding the degree of restrictiveness of current financial conditions and the associated risk that such conditions were insufficiently restrictive on aggregate demand and inflation.”

Later on in the minutes, a bit more on the same thing, “Al­though monetary policy was seen as restrictive, many participants commented on their uncertainty about the degree of restrictiveness. These participants saw this uncertainty as coming from the possibility that high interest rates may be having smaller effects than in the past, that longer-run equilibrium interest rates may be higher than previously thought, or that the level of potential output may be lower than estimated.”

“Several participants said that business contacts in their Districts reported increased difficulty in raising their output prices, while a few participants reported a continued ability of firms in their Districts to pass on higher costs to consumers.”

“Participants noted disappointing readings on inflation over the first quarter and indicators pointing to strong economic momentum, and assessed that it would take longer than previously anticipated for them to gain greater confidence that inflation was moving sustainably toward 2%.”

“Participants assessed that demand and supply in the labor market, on net, were continuing to come into better balance, though at a slower rate. Nevertheless, they saw conditions as having generally remained tight amid recent strong payroll growth and a still-low unemployment rate. Participants cited a variety of indicators that suggested some easing in labor market tightness, including declining job vacancies, a lower quits rate, and a reduced ratio of job openings to unemployed workers." 

Some participants indicated that business contacts had reported less difficulty in hiring or retaining workers, al­though contacts in several Districts continued to report tight labor conditions, especially in the health care and construction sectors. Many participants commented that the better balance between labor demand and supply had contributed to an easing of nominal wage pressures. Even so, a number of participants noted that some measures of labor cost growth, including the ECI, had not eased in recent months, and a couple of participants remarked that negotiated compensation agreements had added to wage pressures in their Districts.”

With respect to the balance sheet and the change in the pace of the shrinkage, “Various participants emphasized that the decision to slow the pace of runoff does not have implications for the stance of monetary policy. Several participants also emphasized that slowing the pace of balance sheet runoff did not mean that the balance sheet would ultimately shrink by less than it would otherwise.”

And lastly, to keep all of us on our toes, “Various participants mentioned a willingness to tighten policy further should risks to inflation materialize in a way that such an action became appropriate.”

No trades since previously reported.

On the road… again.

(DJT)  Intraday last 23 Hours

Masterhedge

Tom Lee - While many investors logically are sidelined in front of Nvidia NVDA +0.77%, the marquee AI company, fiscal 1Q25 (after the close Wed) earnings, in our view, probabilities favor a broad NVDA and equity rally post results. We do not have insights into whether the company will exceed Street expectations, but our view is anchored on the seemingly cautious positioning ahead of results.

• NVDA has moved ~9% (1 day), so a sizable move Thursday is expected. Below is the 1D reactions: – Date Qtr 1D change – 2/21/24 F4Q24 +16% – 11/21/23 F3Q24 -3% – 8/23/23 F2Q24 +0% – 5/24/23 F1Q24 +24% – 2/22/23 F4Q23 +14% – 11/16/22 F3Q23 -2% – 8/24/22 F2Q23 +4% – 5/25/22 F1Q23 +5%
• Looking at the last 8 reactions, the “muted” reactions have been in fiscal 3Q results (Nov 2023 and Nov 2022). And a sizable reaction seen post fiscal 1Q. The average is +20% in the last 2 years. So, we think the probabilities favor a large move post-1Q results.
• This is also not entirely surprising since NVDA has been consolidating the past 8 weeks. And as shown below, post these consolidations, the stock has made a sizable move higher. Anecdotally, in our recent conversations with institutional investors, we get the sense the investors have been cautious ahead of NVDA results, because of the size and importance of the company to the broader technology thesis.
• We can see caution by investors as evidenced by the rise in cash balances in each of the last 3 weeks for both institutional and retail investors, based upon data by ICI. Just in the last week, cash balances rose $16 billion. That is a significant amount of added liquidity on the sidelines.
• Seasonals remain favorable, which we highlighted multiple times recently: – when 1Q positive AND April negative, since 1927 – and ex-bear markets, 17 instances – May positive 74% of the time – June even better, positive 100% of time – median June gain +3.9%
• So, the seasonals seem particularly strong for the next 6 weeks. Thus, another factor supporting why we expect stocks to be strong post-NVDA results

Bottom line: We expect a rally post-NVDA

Added to shorts  (XLF)  $42.19,  (APO)  $114.73,  (BX)  $127.92 and  (KKR)  $107.06.

Added to longs  (XLU)  puts and very small to  (VKTX)  $62.97.

I sold some more  (URNM)  $58.12.

I covered some  (SBUX)  $78.04 and  (TSLA)  $180.77.

Short, Affirm  (AFRM) , looks like it may trade thru the downside of its recent trading range.

At 10:30 am:

- NYSE volume 122M shares, 13% below its one-month average

- Nasdaq volume 2.29B shares, 32% above its one-month average

- VIX: up 0.59% to 11.93

Breadth

Biggest Movers

Nasdaq 100 Heat Map

Speaking of "looks,"  (JNJ)  also has better pin action.

The way  (SBUX)  is trading over the last few days it is almost as if it is under accumulation.

I am down to tagends in this wonderful short.

Picking back on the long side in an old fave,  (OXY)  $62.37 was down considerably from its recent high.

I don't think this is an optimal entry point so I am starting small on a gradual scale, giving the shares a wide berth.

Energy stocks were a market fave as prices rose.

But the last few weeks have been punitive. Its funny how the optimistic and confident "talking heads" on Fin TV have barely mentioned the sector recently.

Another lesson learned about "group stink."

I suspect if the market finally corrects, there will be a find buying opportunity in oils.

I am down to tagends on uranium.

I am adding to my  (DJT)  short.

Upside

-BNED +74% (momentum following potential strategic transaction)
-BZFD +50% (former US Presidential candidate Vivek Ramaswamy discloses 7.7% stake in 13D filing)
-MGOL +34% (momentum)
-RZLT +24% (Phase 2 Proof of Concept Study of RZ402 in Patients with Diabetic Macular Edema (DME) met primary endpoints)
-WOOF +13% (earnings, guidance)
-INDP +12% (first patient receives multiple doses of Decoy20; intends to progress Decoy20 into combination studies with a checkpoint inhibitor)
-LMFA +11% (momentum)
-DY +9.7% (earnings, guidance)
-WSM +7.5% (earnings, guidance)
-IMNM +7.0% (CEO Siegall purchases $1.4M worth of common shares)
-PDD +6.5% (earnings)
-KC +6.0% (earnings)
-ADI +5.8% (earnings, guidance)
-TNDM +4.4% (Citi Group Raised TNDM to Buy from Neutral, price target: $57)
-URBN +4.1% (earnings)
-UNFI +3.6% (extends distribution partnership with Whole Foods Market to 2032)
-SHOP +3.3% (Goldman Sachs Raised SHOP to Buy from Neutral, price target: $74)
-RPD +3.2% (Point 72 (Steve Cohen) discloses 5% stake)
-NRBO +2.5% (DA-1241 in combination with Semaglutide improves Liver Fibrosis and demonstrates additive Hepatoprotective effects in Pre-Clinical MASH Models Compared to either treatment, alone)

Downside

-BDRX -41% (announces $7M of gross proceeds from warrant exercises)
-LFST -18% (prices 20M shares at $6.25/share for selling holders)
-PLAB -14% (earnings, guidance)
-CAE -12% (reports prelim Q4 Rev, guides initial FY25; announces re-baselining of Defense Business, appointment of Nick Leontidis as new COO, and 5% share buyback)
-MOD -11% (earnings, guidance)
-VSAT -11% (earnings, guidance)
-TGT -9.6% (earnings, guidance)
-GCT -7.7% (hearing subject to Grizzly Research short call)
-SKY -7.3% (earnings)
-GOGL -6.4% (earnings)
-HAE -6.1% (files to sell $525M proposed convertible senior unsecured notes offering due 2029)
-HIMS -4.3% (hearing Citi Group Cuts HIMS to Neutral from Buy, price target: $20)
-LULU -4.3% (announces evolved structure of product and brand teams in conjunction with departure of Chief Product Officer)
-XP -4.3% (earnings) 

While it hasn't gotten much mention with the Dow Jones Industrials Average 40,000 and the S&P 500 hitting fresh highs, but the Transportation index can't get out of its own way, is no higher than it was in June 2023 and was down by 1.7% yesterday and lower for the 5th day in 6.

I'll highlight the 2.9% fall specifically in JB Hunt yesterday in response to the comments they made at the Wolfe Global Transportation & Industrials conference.

They said:

"The broader feedback from our customer is, in many cases, the customer's volume was down. And so some of that negativity is more around the customer just doesn't have the business. But the broader feedback from our customers has been just truckload capacity is loose. And costs have surprised customers."

"And so there's been a lot of debate about how long will the lower truckload rates last? And nobody knows. We joked earlier that today is one day closer to hopefully truckload rates beginning to climb. We'll see when that happens. I have no idea when that will happen. But volume demand has been okay." On the other hand, we know ocean freight costs have spiked this year for reasons we know.

Also out yesterday was the monthly truck tonnage index from the American Trucking Association and it showed a 1.2% drop in April after falling by 2.2% in March and is lower by 1.5% y/o/y. The chief economist at the ATA said "The truck freight market remained soft in April as seasonally adjusted volumes fell for the 2nd straight month. With a rebound in freight remaining elusive, it is likely that additional capacity will leave the industry in the face of continued softness in the market."

Have you heard me say how mixed and uneven the economy is? More evidence below.

Lowe's saw Q1 comps down 4.1% and talked about "the continued pressure in DIY bigger ticket discretionary spending across the industry," exactly what Home Depot said. Their Pro business in contrast did better and saw positive comps. This is due in part to taking share from others in doing business with small and medium sized repair and remodel contractors.

More on their view of the macro:

"Uncertainty around interest rate cuts, stubborn inflationary pressures, and a consumer still showing a preference towards spending on discretionary services and experiences continue to weigh on the DIY home improvement demand, and the outlook for lower mortgage rates and improved housing turnover remains uncertain. Real wage growth and home price appreciation are solid, but the home improvement customer is still on the sideline, expressing concerns about the higher cost of living and the state of the overall economy."

Target just reported Q1 comps down 3.7% and an earnings miss with slight revenue beat. They said this in the earnings press release, "Sales declines, primarily in discretionary categories, were partially offset by continued growth in beauty." We'll await more color from the call but Brian Cornell did tell CNBC that "We haven't seen any significant change in the health of the consumer over the last couple of quarters." In other words, the consumer remains bifurcated and value seeking.

From Macy's:

"Our customers across all three nameplates continue to benefit from strong wage and job growth. However, inflationary pressures persist, and they're feeling that pinch. The outlook provided on our 4th quarter earnings call, as well as today's update, assumes our customers will continue to carefully scrutinize their discretionary purchases."

On the credit side where revenue here fell 28% y/o/y and delinquencies rose, they did say that was in line with their internal expectations.

More on their customer from the CEO, "The health of the consumer, I never claimed to be an economist, I would say, as we've described, are under pressure, discerning, very choiceful. There are certainly categories that are stronger than others...I expect the consumer to remain under pressure."

"With regard to the different income levels, we're certainly seeing at the high end the Bloomingdale's consumer is interested in purchasing but she's being very thoughtful in the category she's purchasing in...So there's just a difference I think as you look at income tier, the customer at the lower tier has to make choices based on rent and family obligations. The customer at the higher tier is going to do it based on where she has interest."

Toll Brothers earnings call is this morning but said this in their release:

"Demand for new homes continues to be driven by a resilient economy, favorable demographics and a lack of supply that reflects both the chronic underproduction of housing in the US and the historically low levels of resale inventory caused by the lock-in effect of higher rates. Our strategy of widening our price points to include more affordable luxury homes and increasing our supply of spec homes has helped us grow market share."

They are also benefiting from about 25% of their customers who pay all cash and thus don't need a mortgage.

It's not just copper, gold and silver that are rallying. Aluminum yesterday closed at the highest level since June 2022 at almost $2,700 per metric ton. Iron ore this morning is at a 3 month high.

Aluminum

Iron Ore

Mortgage apps were mixed as refi's rose 7.4% w/o/w as rates fell again to about 7% but purchases were down by 1.2% w/o/w and down in the 8th week in the past 10 and stands a hair above the lowest level since the mid 1990's.

Purchase Apps

With respect to the release of the Fed minutes from their meeting 3 weeks ago, we've heard from so many Fed members since, particularly Waller yesterday, and why I don't expect anything new. I will be watching out for the commentary on why QT was cut from $60b to $25b vs the widespread expectations of $30b. That $5b might not sound like a lot but I think it was a wink and nod from Powell to Yellen and wanting to keep the Treasury market yields tame.

Moving overseas, the Reserve Bank of New Zealand kept rates unchanged at 5.5% and Bank Indonesia held at 6.25%. Both are intent on sitting tight for a while.

Japan said its April exports grew by 8.3% y/o/y which was below expectations of a gain of 11%. A rise in autos and electronic products including semis helped. So, the weaker yen helped some but didn't help enough. That weaker yen did see imports rise a bit less than expected, up by 8.3% too as things get more expensive.

There is nothing market moving here but the real news in Japan overnight was their 10 yr yield closed up by another 3 bps to over 1% at 1.01%. That used to be the upper end of YCC that the BoJ scrapped and the highest yield since April 2012. I continue to believe the rate move in Japan has global repercussions in terms of bond market action in the US and Europe. Rates are higher today in each region.

10 yr JGB Yield

Also goosing yields in Europe, particularly in the UK was hotter than expected inflation stats. The headline print of 2.3% vs 3.2% in the month before was mostly due to the energy subsidies handed out that reset lower. Taking this out and looking at core saw a 3.9% y/o/y rise, 3 tenths above expectations, though down from 4.2% in March. Input wholesale prices also rose more than expected, though output charges were a bit less.

While the 10 yr inflation breakeven in the UK is little changed, the 10 yr gilt yield is jumping by 10 bps and the 2 yr by 13 bps as the market takes out some rate cut odds.

UK Core CPI y/o/y

I have absolutely no informed or differentiated view with regard to Nvidia's undefined Sales/EPS and guidance to be announced after the close.

But I do have a speculative option trade idea.

I would consider buying  (XLU)  May 31 and June (monthly) $72 puts - the puts closed at $0.68 and $0.29.

To me, it is out of the question that I would speculate, in an uninformed fashion, on NVDA's results by buying or shorting NVDA shares. There is just too much capital being risked in for what is essentially a gamble.

Outcomes

If NVDA's shares respond to the news positively, the puts likely move towards zero.

But if NVDA's shares respond to the news negatively, the puts likely will increase in value.

To me, the upside reward v. the downside risk is positively skewed and asymmetric.

I am long both puts, but very small.

Win, lose or draw I will report back tomorrow morning!

* Full of sound and fury, signifying nothing...

* And where everybody knows your name (Nvidia):

In yesterday's column, Where Everybody's Knows Your Name, I suggested that every "talking head" in the business media, despite not really knowing much about Nvidia undefined nor being equipped analytically to have a differentiated view - will give their "views" and "insights."

Frankly it is silly, at best - embarrassing at worse. And I won't waste my time listening to those whose knowledge base is miles long but only inches deep.

I do have a rather unique trading idea how one "can play" the NVDA report - more later this morning!

Here is how NVDA has performed in each of the last twenty EPS reports:

Where Everybody Knows Your Name

From yesterday, here.

Fed begins accepting marijuana rescheduling comments.

"A big part of my process is taking signals from markets. I've always believed markets
are smarter than I am."

- Stanley Druckenmiller

Bonus - Here are some great links:

Thoughts on Dow 40K

The Most Persistent Market Trend 

Dollar Down? The 10 Year Says Yes    

Crypto Shorts Shattered         

... you will not see them being discussed in the business media today.

* My turn....

US Deficit and Debt:

We are on an unsustainable path of government debt creation and fiscal imprudence. The unprecedented partisanship that exists in Washington, D.C., is unlikely to change as we lean into a Presidential election in November. Nor will the political schism between Democrats and Republicans narrow post election. Fiscal discipline will likely continue to be ignored by both political parties until it is too late: 

Earnings, Price to Book Value and Equity Risk Premium

By most historic metrics, stocks are valued in excess of the 90% tile. Compared to interest rates equities are more expensive at any time in more than two decades:

Mutual Fund Cash Balances

The VIX

 VIX is a measure of investor sentiment and risk appetite. The VIX closed at 11.86 today - at the lowest since November 27 2019. What happened the next 3 days? The VIX popped 54%:

As investors position much more bullishly:

Inflation

Depending on your methodology, core services inflation rose by five to six percent last month. Now commodities (goods inflation) has begun to revive. Higher inflation for longer means higher interest rates for longer:

The Economy

As risks of higher inflation increase, the risks of slowing domestic economic growth are on also on the rise. I call this "slugflation" - a condition unfriendly to equities: 

I will be out of the office most of the afternoon (and for the Nvidia undefined fireworks) as I just received word that two companies I have been researching are now available in Miami.

Accordingly, my posts this afternoon will be short and less frequent.

And, fortunately, I will be spared being around for the EPS report after the close.