Nasdaq Pumps the Volume, Fed Out In Force, Dimon Drops a Bomb, Trading Palo Alto
Monday was the fifth consecutive regular trading session of outsized trading volume for Nasdaq-listed securities.
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Financial markets were quieter than they have been on Monday. Semiconductors led a rally in tech stocks that took the key Nasdaq indexes higher, as Financials, led by the banks, led to the downside. Everything else sort of meandered around listlessly as a barrage of Fed speakers tried to say very little and ahead of tomorrow (Wednesday) afternoon's quarterly earnings release by Nvidia NVDA.
Treasury yields backed up small as by day's end, the U.S. 10-Year Note paid 4.44% and the 2-Year Note paid 4.84%. Just as a heads up, Wednesday afternoon will also dish out the latest edition of the FOMC Minutes (from the May 1 policy meeting) as well as a Treasury auction of $12B worth of 20-Year paper.
The S&P 500 gained less than five points, or 0.09% on Monday, while the Nasdaq Composite scored a gain of 0.65%. The broader market fared less well, as the Dow Industrials gave up 0.49%, the Dow Transports gave up 0.47% and the KBW Bank Index gave up 1.43%. In a bit of a trading paradox for the session, the S&P SmallCap 600 gave back 0.08%, while the small-cap Russell 2000 gained 0.32%.
Seven of the 11 S&P sector SPDR ETFs closed lower for the session, while four rallied. Outside of Technology XLK, which was up 1.19%, and the Financials XLF, which were down 1.32%, no other fund among the 11 gained more than 0.29% or lost more than 0.74%.
Breadth was solid in spots, but still skewed by excessive trading in penny stocks and stocks with elevated short interest, making it difficult to take anything substantial away from the day's trade. Winners beat losers at the NYSE by roughly 7 to 6, while losers beat winners at the Nasdaq by an even slimmer margin (11 to 10). Advancing volume took a 58.4% share of composite NYSE-listed trade, and aggregate trading volume contracted by 6.3% on a day-over-day basis.
Advancing volume took just a 37% share of composite Nasdaq-listed trade, on aggregate volume that contracted significantly from Thursday's and Friday's record-setting levels. I'd be slow to draw any conclusion from the majority of the volume that printed on the downside as trading was still very heavy in stocks that do little to help determine market direction or market health.
Aggregate trade across the membership of the Nasdaq Composite printed at a 28% premium to the 50-day trading volume simple moving average for that index. Monday was the fifth consecutive regular trading session of outsized trading volume for Nasdaq-listed securities.
Out in Force
With the Financial Markets Conference hosted by the Atlanta Fed ongoing, various central bankers were out in force on Monday and many will be speaking again on Tuesday.
There seems to be a broad call for an abundance of caution in taking any next step in impacting the trajectory of monetary policy, as it seemed clear that no one among those who were speaking publicly was willing to differ in their view from Fed Chair Jerome Powell's. Powell told us last week that he sees the next short-term rate change as likely to be a cut but held off on offering up any timing.
On Monday....
Cleveland Fed Pres. Loretta Mester said..."I was on the record before saying I was at the median which was three (rate cuts in 2024). The developments I've seen in the economy right now, I would not think that that's still appropriate." Mester acknowledged in her address that inflation has once again become concerning, but that in her view, the economy was "stronger than I anticipated." Note... Mester will vote in June, but she then retires. An alternate will likely vote in Cleveland's place from July on until a successor is selected to lead the Cleveland district.
Atlanta Fed Pres. Raphael Bostic said... "I do not think that our new steady state (for short-term rates) is likely to be higher than what people have known over the last decade - maybe back to where we were in the 1990's and 2000's, but we'll just have to see." Atlanta is a voting member of the FOMC this year.
San Francisco Fed Pres. Mary Daly spoke... "I'm not confident inflation is yet coming down sustainably to 2%, but I don't see any evidence right now that we need to adjust upwards either." San Francisco is a voting member of the FOMC in 2024.
Fed Vice Chair Philip Jefferson commented... "It is too early to tell whether the recent slowdown in the disinflationary process will be long lasting. The better reading for April is encouraging." As a member of the Board of Governors, Jefferson holds permanent (while in office) FOMC voting rights.
Fed Gov. and Vice Chair for Supervision Michael Barr referred to the recent lack of progress in fighting inflation as "disappointing." Barr then commented... "This means that we'll need to allow our restrictive policy some further time to continue its work. I think we are in a good position to hold steady and closely watch how conditions evolve." As a member of the Board of Governors, Barr holds permanent (while in office) FOMC voting rights.
Fed Gov. Christopher Waller did not speak on monetary policy directly, but did speak on currency valuation, which of course, impacts both GDP and inflation through trade. Waller said... "There has, for some time, been commentary that the dollar is destined for demise - potentially an imminent demise. Such predictions have not materialized. However, the role of the United States in the world economy is changing, and finance is always changing, so I think it is important for policymakers to regularly consider if and why the dollar's role might change as well." I'd be lying if I said that the way some nations now settle commodities trades that used to be settled in U.S. currency isn't concerning. I am heartened that someone in a position of monetary leadership is paying attention. As a member of the Board of Governors, Waller holds permanent (while in office) FOMC voting rights.
As readers can see below, the macro calendar is light this morning, as is the earnings calendar, but the Fed will be out in force yet again.
Goodbye to You?
Why were the banks and financials so weak on Monday? The answer is two-fold and both folds have to do with JPMorgan Chase JPM.
One... the bank held its Investor Day on Monday and at the event, CEO Jamie Dimon ruled out any share repurchasing at current prices. On repurchasing shares at 2.3 times tangible book, Dimon said quite frankly... "We aren't going to do it."
On the broader economy, Dimon said "I'm cautiously pessimistic. We have the most complicated geopolitical situation that most of us have not seen since World War II. We don't really know the full effect of (the Fed's quantitative tightening program). I find it mysterious that somehow, it has a beneficial effect, but it's going to have a negative effect when it goes away. I personally think inflation is a little bigger than people think, and rates may surprise people."
After dropping those bombs, Dimon also stated that the timetable for succession at the chief executive position for the bank was no longer five years. Dimon has often stated that he expected to remain in his position for at least five years. This admission that he may consider retiring or at least leaving his post was taken badly by shareholders. JPM was the worst-performing large-cap bank in the Dow Jones U.S. Bank Index on Monday at -4.5%.
Update on Palo Alto Networks
Palo Alto Networks PANW released its fiscal third-quarter results Monday evening. The company beat performance expectations for both its top and bottom lines. Yet, the stock is trading 7.8% lower overnight as I have seen it cross the tape close to dawn with a $298 handle after closing at $323.77.
The problem for a second consecutive quarter was in the guidance. For the current quarter, Palo Alto sees growth decelerating in both billings and revenue generation, which was the issue that last time the shares sold off so sharply in February.
Should these price levels hold, the first suggested trade in our Palo Alto article here Monday would, on Friday, net the trader $405 per contract, while our second suggested trade would, by June 21, wind up costing the trader $730 per single spread. Of course, the first idea expires this week, while the second idea allows another month for the situation to improve.
I did try to grab some equity at $290 last night after hours. However, the stock only traded down into the $291s and I was left whiffing on the pitch.
Economics (All Times Eastern)
08:55 - Redbook (Weekly): Last 6.3% y/y.
16:30 - API Oil Inventories (Weekly): Last -3.104M.
The Treasury & The Fed (All Times Eastern)
04:00 - Speaker: Treasury Secretary Janet Yellen.
09:00 - Speaker: Richmond Fed Pres. Tom Barkin.
09:00 - Speaker: Reserve Board Gov. Christopher Waller.
09:05 - Speaker: New York Fed Pres. John Williams.
09:10 - Speaker: Atlanta Fed Pres. Raphael Bostic.
11:45 - Speaker: Reserve Board Gov. Michael Barr.
19:00 - Speaker: Atlanta Fed Pres. Raphael Bostic.
19:00 - Speaker: Boston Fed Pres. Susan Collins.
19:00 - Speaker: Cleveland Fed Pres. Loretta Mester.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: AZO (36.14), LOW (2.96), M (0.17)
After the Close: TOL (4.15)
At the time of publication, Guilfoyle had no positions in any securities mentioned.
