The Re-Rotation, FedEx Roars, Doves Coo as Hawks Screech, More Troubling Macro
Tech rules, while the rest of the market drools. Meanwhile, Rivian's venture with VW rekindled my trading enthusiasm after I outsmarted myself in Nvidia.
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Is that it? Is the "great rotation" already over? Is the re-rotation back on? Maybe Tuesday was a one-off?
How could I have been so stupid as to take off a third of my long Nvidia NVDA trade on Monday? At least I was smart enough to leave two-thirds of that trade on. Late Tuesday, I tried to buy those shares back up $5 from where I sold them...and missed.
The news flow was light on Tuesday. Fed governors sent somewhat mixed messages on Tuesday, as again, the macro largely disappointed. Traders stepped in and bought the dip where the dip was, across the few, and sold the rally where the rally was...across the many.
The winners were easily identifiable. Nvidia added 6.76% (and added more overnight) on Tuesday, leading the "Magnificent Seven" as all seven of those names closed out the day in the green. Both Meta Platforms META and Alphabet GOOGL gained more than 2% as the Roundhill Mag Seven ETF (MAGS) picked up 2.63% on the day. Beyond those chosen few, the Technology Sector SPDR ETF XLK gained 1.83% as the Communication Services SPDR XLC tacked on 1.11%.
Beneath the sector level, the Dow Jones U.S. Semiconductor Index gained 3.85%, as the Philadelphia Semiconductor Index advanced 1.79%. Yet again, these two prove not to be in sync with one another, though both were decisively positive. The Dow Jones U.S. Software Index scored a gain of 0.79%. This took the Nasdaq Composite up 1.26% and the Nasdaq 100 up 1.18%.
Huzzah! Tech rules. The rest of the market drools.
So, It Was...
Traders said, "sold" to eight of the 11 S&P sector SPDR ETFs, as Materials XLB and the REITs XLRE both surrendered more than 1% for the session. Only kidding. Oh, those sector funds sold off. I mean that there were any human traders left to actually say "sold."
The banks sold off ahead this afternoon's stress test results after having rallied, I thought, into those results for several days. Small to mid-caps sold off. The Transports sold off. The Dow Industrials? Remember them? Yeah, they sold off too.
Losers beat winners by about 7 to 4 at the NYSE and by roughly 3 to 2 at the Nasdaq. Advancing volume took but a miniscule 29.1% of composite NYSE-listed trade, but a 51.8% share of composite Nasdaq-listed trade as trading volume in the few winners expanded. Trading volume in the aggregate continued to ebb coming out of last Friday's events. Trade contracted by just a smidge for NYSE-listed names from Monday.
However, trade across Nasdaq listings contracted by another 11.9% on Tuesday from Monday after nearly halving on Monday from Friday. Does this make Tuesday's rally less meaningful? In all honesty, it would be a reason we could point to, should this re-rotation ultimately fail. That's not how it felt or feels in real time, though.
More Troubling Macro
The macroeconomic data released on Tuesday did not show evidence of a collapse but continued to express the withering erosion of financial conditions that we have seen for some time now in this country.
First, the Case-Shiller Home Price Index for 20 major cities on a year-over-year basis for April printed at growth of 7.2%, which was down from 7.5% growth in March, but above expectations. Is this good news or bad? I guess a slowing in the price of homes is a negative for both buyers and sellers. Prices continue to rise, still pricing younger generations out of that market, which retards natural household formation. As Bleakley's Peter Boockvar pointed out in real time, the rent of primary residences used in the formula for CPI is up 23% since February 2020, but home prices are up some 48%.
A short while later, the Richmond Fed Manufacturing Index printed in deep contraction at -10 for June as the components for New Orders, Backlogged Orders, Shipments, and Local Business Conditions all simply fell off of a cliff since May. Number of Employees also contracted, while Wages, Prices Paid, and Prices Received all expanded sharply. Not a healthy mix. June was the eighth consecutive month that this series printed at zero or in negative territory at the headline. Yes, Richmond is a significant district in regard to the U.S. manufacturing base.
Lastly, the Conference Board's June survey for Consumer Confidence printed at 100.4, down from 101.3 in May. Several actual lines from the press release told the tale...
"Consumers were less optimistic about the short-term business conditions outlook in June."
"Consumers' assessment of their short-term income prospects deteriorated in June."
"Consumers' assessment of their family's current financial situation weakened in June."
When Doves Coo
On Tuesday, Fed Governor Lisa Cook spoke to the Economics Club of New York. She ran through just about every topic in domestic economics. Very thorough speech. Too much to quote at length. Some highlights...
On Inflation...
"After rapid disinflation in the second half of last year, progress has slowed this year."
"My forecast is that final three- and six-month inflation rates will continue to move lower on a bumpy path, as consumers' resistance to price increases is reflected in the inflation data."
"I see inflation slowing more sharply next year, with housing-services inflation declining to reflect the past slowing in rents on new leases."
On Employment...
(Labor market) "Estimates are uncertain, such as a breakeven pace may be a bit higher than the true pace of job gains, when taking into account data from the Quarterly Census for Employment and wages. These data suggest that payroll job gains were overstated last year and may continue to be so this year." (Finally, someone in authority is actually paying attention.)
On Policy...
"I believe that our current policy is well positioned to respond as needed to any changes in the economic outlook, with significant progress on inflation and the labor market cooling gradually, at some point it will be appropriate to reduce the level of policy restriction to maintain a healthy balance in the economy."
When Hawks Screech
Elsewhere, Fed Governor Michelle Bowman also spoke publicly, from London. Bowman said, "We are still not yet at the point where it is appropriate to lower the policy rate." Bowman went so far as to add that she was "willing to raise" (the Fed Funds rate) "should progress on inflation stall or even reverse."
Wow. Tell us how you really feel. Note that Bowmans is set to speak again this Friday after May PCE data hits the tape.
FedEx Roars
When's the last time you saw FedEx FDX up 13% overnight after releasing earnings? Been a long time since they rock and rolled.
FedEx beat on the top and adjusted bottom lines on actual revenue growth. This ended a five-quarter losing streak of year-over-year revenue contraction. The company projected more growth for fiscal year 2025, on above-consensus guidance for profitability.
FedEx also expects to repurchase $2.5B worth of common stock through the fiscal year including $1B during the current quarter.
In Other News...
Volkswagen AG announced after the bell a $5B investment in a joint venture with Rivian Automotive RIVN. I am flat his name now, but this was a great day-trading vehicle during the after-hours session on Tuesday.
I was stuck waiting outside of a medical office as my wife had to get an MRI when I caught wind of this news, and RIVN did manage to rekindle some personal enthusiasm after I had outsmarted myself in Nvidia. That was a nice ego boost when I needed it.
VW will invest $1B in Rivian directly and another $4B over time. The new venture will be controlled mutually and aim to develop the next generation in battery-powered vehicles and software.
Remember that Rivian holds its investor day on Thursday, so this story likely stays in the news cycle for now. RIVN is up 38% overnight.
Economics (All Times Eastern)
07:00 - MBA 30 Year Mortgage Rate (Weekly): Last 6.94%.
07:00 - MBA Mortgage Applications (Weekly): Last 0.9% w/w.
10:00 - New Home Sales (May): Expecting 655K, Last 634K SAAR.
10:30 - Oil Inventories (Weekly): Last -2.547M.
10:30 - Gasoline Stocks (Weekly): Last -2.28M.
The Fed (All Times Eastern)
16:30 - Bank Stress Test Results
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: GIS (1.00), PAYX (1.10)
After the Close: LEVI (0.11), MU (0.53)
At the time of publication, Guilfoyle was long NVDA equity.
