Markets Walk on Eggshells, Jolting JOLTS, Sour Breadth, Intel, Nvidia and Musk

Markets held up on Tuesday, at least they did at the headline level. For a fourth consecutive trading day, financial markets had to absorb weaker-than-expected macroeconomic data, five if one wants to count the Fed's Beige Book as economy data. 

This, once again put a bid under U.S. Treasury debt securities as the yields for the U.S. 10-Year Note and U.S. 2-Year Note dropped by 6 and 4 basis points, respectively. By the end of the regular trading session 10-Year paper paid 4.32%, down almost 30 basis points from where that yield peaked last week.

Equities, for a third session in a row, sold off only to find better footing and rally into the close, at least as I mentioned above, at the headline level. By the time the second bell of the day had stopped ringing, the Nasdaq Composite had gained 0.17% for the session, followed by the S&P 500 which was up 0.15%. 

Other parts of the market have had less success than did the major indexes with the eggshells. The Russell 2000 surrendered 1.25% on Tuesday, painting the tape red for a second straight session. The same goes for the Dow Transports as that group was down 0.91%.

Smaller-caps and transports tend to be much more cyclical in nature and thus far more reliant upon visible economic activity than are the headline indexes. Those broader indexes can fall back on the somewhat more inelastic demand for certain technologies, the hope that weaker data could lead towards a reduction in short-term rates and the resilience of defensive sectors in order to balance the flow of capital.

Oddly, or maybe not so oddly, though consumer-level inflation has persisted at uncomfortable levels, the "inflation trade" that had worked so well in 2024, has stopped working of late. Commodities such as crude, natural gas, copper, corn and wheat have all reversed or at least paused in recent weeks as have precious metals such as gold and silver. Much of this is due to the fact that the macro has been soft, as well as the hope that a peace deal might be reached in the Middle East.

Troubling Data

There was not a whole ton of data released on Tuesday, and what was released was sort of dated...but what was released was weaker than expected. At 10 a.m. ET, the same BLS that will post the May jobs numbers this Friday, posted the April JOLTS report that showed job openings across the U.S. had fallen to 8.059M that month from 8.355M in March, which was itself revised lower from 8.488M. Consensus for April had been for something close to 8.4M.

The hiring rate stands at 3.6% as it has been, slightly above what would match a 10-year low (ex-Covid) of 3.5%. Job quits for April increased slightly to 3.507M for a rate of 2.2%, which is also where this data-point has been and matches a post 2018 low, ex-Covid. All in all, the numbers appear to reflect a weakening demand for labor that has not yet truly showed up in the headline-level monthly labor market surveys but is starting to show in the revised version of some labor market reports.

April Factory Orders printed alongside the JOLTS release. This data-point showed some unexpected weakness as well. The print for April landed at month-over-month growth of 0.7%, which had been expected. The problem with that was that the growth for March had been reduced from 1.6% down to 0.7% as well. Hence, April's 0.7% growth was off of a lower base than had been the consensus forecast, effectively creating double misses for the months of March and April.

Sour Breadth

While it is true that six of the 11 S&P sector SPDRs closed out Tuesday in the green, the problem there is that the winners were led by the REITs XLRE and the Staples XLP, with Health Care XLV in fourth place. Defensives are where investors run when preservation of capital becomes a priority. Materials XLB led to the downside at -1.03%, as cyclical sectors, which tend to suffer during periods of reduced economic activity, took the bottom four rungs on the daily performance table.

Losers beat winners by more than 3 to 2 at the NYSE and by more than 2 to 1 at the Nasdaq market site. Advancing volume took a 30.4% share of composite NYSE-listed trade and a 46.9% share of composite Nasdaq-listed trade. For a second straight day, trading volume decreased fairly sharply from the day prior across the listings of both exchanges as well as across the memberships of both the S&P 500 and Nasdaq Composite.

What does that mean to me?

Well, we have two straight days where the headline indexes managed to post gains despite decreased aggregate trading volume and despite negative breadth. Do I trust this market? Do I trust certain names far more than I do this market? Yes. Is the inflation trade finished? I am not sure. 

I have reduced (not exited) my exposure to copper, but I am holding at measured (pre-selloff) levels of exposure across gold, silver, electricity and uranium mostly through exchange-traded funds.

Chips in the News

Intel INTC is up about 1% overnight as news broke that the firm has partnered with Apollo Global APO, which will pay $11B for a 49% stake in the tech firm's Fab 34 plant in Ireland. Construction on the facility is largely complete, as the plant has already started producing Core Ultra processors for Intel. The plan at this point would be that the joint Intel/Apollo operation will manufacture wafers to sell to the Intel parent that will own 51% of the venture. 

I wrote negatively on Intel at TheStreet Pro on Tuesday ahead of this news. This is good news for Intel but does not change my overall decision to invest in the chips space without investing in Intel.

Meanwhile, weird news hit the tape on Tuesday afternoon that Tesla TSLA CEO Elon Musk had directed Nvidia NVDA H100 chips originally purchased for the EV manufacturer to the X (Twitter) AI business, which is also owned by Musk. Musk still "guesses" that Tesla will purchase $3B to $4B worth of equipment from Nvidia this year. 

Nvidia is trading up 1.5% overnight after closing up 1.25% on Tuesday and up 4.9% on Monday. Tesla is up small overnight. I wrote positively on Nvidia and Nvidia rival Advanced Micro Devices AMD here on Monday. I am long both of those names.

Dollar Dayz

U.S. dollar valuations will remain in focus throughout the week as the Bank of Canada decides on monetary policy this morning and the European Central Bank does the same on Thursday morning. BlackRock BLK released a statement on Tuesday that should the ECB reduce its deposit rate from 4% this week as is expected, that would kick off an atypical easing cycle that would be led from outside the U.S. by a central bank controlling a peer reserve currency. 

BlackRock (and others) expect the euro to lose some value versus the U.S. dollar for as long as there is a policy gap between the ECB and the Fed.

They Said It

"Active fixed income is positioned to perform well if there are no recessions over our secular horizon and to perform even better if there are."

— Pimco's Richard Clarida, Andrew Balls, and Daniel Ivascyn (from written material released Tuesday)

I'll Be Back...

... in a couple of hours with an in-depth piece on CrowdStrike CRWD earnings. First, I have to do some monetary policy focused TV in Asia.

Economics (All Times Eastern)

07:00 - MBA 30 Year Mortgage Rate (Weekly): Last 7.05%.

07:00 - MBA Mortgage Applications (Weekly): Last -5.7% w/w.

08:15 - ADP Employment Report (May): Expecting 178K, Last 192K.

09:45 - S&P Global Services PMI (May-F): Flashed 54.8.

10:00 - ISM Non-Manufacturing Index (May): Expecting 50.7, Last 49.4.

10:30 - Oil Inventories (Weekly): Last -4.156M.

10:30 - Gasoline Stocks (Weekly): Last +2.022M.

The Fed (All Times Eastern)

Fed Blackout Period.

Today's Earnings Highlights (Consensus EPS Expectations)

Before the Open: CPB (0.70), DLTR (1.43), THO (1.83)

After the Close: FIVE (0.63), LULU (2.40)

At the time of publication, Guilfoyle, was long NVDA, AMD and CRWD equity.