Jobs Reality, Nvidia Stock Split, Apple WWDC, Fed Week, S&P Rebalancing
Apple stock historically turns in a mixed performance around its higher-profile news-related events.
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U.S. equities posted mixed weekly results for the past week, as there was a visible divergence between performance at the headline index level and the rest of our equity marketplace. At the heart of this divergence was a midweek collapse in yields paid across the spectrum of Treasury debt securities inspired by the perception of weakening U.S. economic performance, followed by spiking yields at week's end triggered by a reversal in that perception.
Starting the week prior, there had been string of weaker-than-expected macroeconomic results reported from the BEA's revision to its estimate for first-quarter GDP through a very soft Chicago PMI for May, a sustained return to contractionary territory for the ISM Manufacturing Index, a sharp move lower for April job openings in the JOLTS report, and a below-consensus print for May in the ADP Employment Report for private payrolls.
That's when the outlook for the U.S. economy started to improve. The ISM Non-Manufacturing (services) Index surprised to the upside for May on Wednesday, followed by a narrower-than-expected trade deficit on Thursday and a very mixed BLS employment report on Friday that when taken at surface level by simpletons, appears strong. That was all the algos needed to move markets.
Futures trading in Chicago that price in the likelihood of any coming change in interest-rate policy moved out the likelihood for a first 25 basis point rate cut from September to November and even November seems to be running close to 50/50. This forced a spike in Treasury yields. The U.S. 10-Year Note paid 4.43% by Friday afternoon, up 14 basis points for the session, as the yield for the U.S. 2-Year Note ran up 16 points for that day, to 4.43%.
Reality
While there was strength in the May release for the BLS Establishment Survey's Non-Farm Payrolls print at job creation of 272%, and wage growth of 4.1% on a year-over year basis for full-time workers, traders and algorithms chose to ignore the facts that 231K of those jobs were created by the Birth/Death model alone.
Traders also chose to ignore the fact that the Household survey, which has actually been more accurate than the Establishment for the better part of two years, showed job losses (not job creation) of 408K for the month. The report also showed reduced full-time labor over a full year, average workweeks at historical lows, and upward moving unemployment despite downward moving participation.
All in all, there was a lot more negativity in this report than there was positive. Algos and the financial media do two things very well, though. Read headlines without actually putting in the homework. For those interested in reading more about Friday's deceptively weak jobs report, I did go into detail on Friday here at TheStreet Pro.
For the week, the S&P 500 gained 1.32% despite posting red candle days on both Thursday and Friday. The Nasdaq Composite gained 2.5% for the week, while doing the same. Just five of the 11 S&P sector SPDR ETFs shaded into the green for the week, led by Technology XLK at +2.59%, and followed by Health Care at +1.9%. The Utilities XLU and Energy XLE were pummeled for weekly beatings of 3.82% and 3.44%, respectively.
Obviously, Nvidia NVDA led large-cap tech stocks as the leader in AI-capable chip design split 10-for-1 over the weekend. GameStop GME gained 21.95% for the week but gave back 39.38% on Friday as the "Roaring Kitty" live-streamed a rather inane appearance on YouTube that frustrated his followers.
The Week Ahead
1) Check your accounts. You should have ten times as many shares of Nvidia NVDA in your account trading at roughly one-tenth of the price. In a note written over the weekend, Goldman Sachs analyst David Kostin cites recent examples such as Amazon AMZN in 2022, and Nvidia in 2021 as cases where mega-cap stocks ended up driving liquidity after a stock split. Don't know how much research was actually required to come up with that one.
2) Apple AAPL will hold the week-long WWDC (Worldwide Developers Conference) this week. Apple is expected to present updated usage of AI-related features across its product and usage of its services-related ecosystem. This will likely include an updated version of Siri and an updated version of the iOS that newer iPhones will run on. The stock has rallied into the event, which ends this Friday, and was up 1.2% on Friday, and 2.4% last week. Apple stock historically turns in a mixed performance around its higher-profile news-related events.
3) May CPI will hit the tape this Wednesday, ahead of the FOMC policy decision that afternoon. This release by the BLS will impact rate-cut expectations as well as equity debt security performance. Wall Street is currently looking for month-over-month growth of 0.2% at the headline and 0.3% at the core, and year-over-year inflation of 3.4% at the headline and 3.5% at the core. That headline print would be in line with the pace experienced in April, while the core printing would be good for a slight year-over-year deceleration from April.
4) Fed Day. This is a big one. Not only will the FOMC come out of its blackout period this Wednesday with a policy statement, but this will also be a meeting where the members of the committee update their economic projections, last made in March. This will include the infamous "dot plot." While no one I know is looking for a rate cut (or hike) this meeting, but what Chair Jerome Powell says about rate changes close to an upcoming national election could speak volumes. While I have made plain my feeling that once this meeting passes, the Fed has to go on hold until after the election, there are many, perhaps more learned than I, who do not see it that way.
5) This Friday should be fairly active. Not only is this a "triple witching" expirations Friday, but Standard & Poors will reconstitute (rebalance) the S&P 400, S&P 500 and S&P 600 indexes. Last Friday, Standard & Poors announced that KKR KKR, GoDaddy GDDY and CrowdStrike CRWD had been selected for addition to the S&P 500. (If only someone has repeatedly told readers that CRWD was a "best in class" name). Getting the boot from the S&P 500 will be Robert Half RHI, Comerica CMA and Illumina ILMN. RHI and CMA will move to the S&P SmallCap 600, where they will replace the outgoing Anywhere Real Estate HOUS and Adtran ADTN.
Okay, gang.... good luck today and carry on.
At the time of publication, Guilfoyle was ong XLU, NVDA. AMZN, AAPL and CRWD.
