Record Highs, Nasdaq Epicenter, Buffett's Mystery Stock, September Cut?
Sorry, you were misinformed. About inflation, and about why markets rallied on Wednesday.
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What a day! Again! Another green daily candle. Another day of incredibly high trading volume.
Now, financial markets did not run out of pep the day after we finally got the volume-based confirmation of this current uptrend on Tuesday that took almost a month in the making. Mr. Market has now granted three consecutive "up" days for the Nasdaq Composite, which is where this most recent leg of this change in trend that began back on April 19 has been focused.
What had started out as strength in Utilities and Financials has morphed into strength in Technology, while the Utilities have remained hot. The S&P 500 has now gone green in eight of the past 10 sessions, and like the Nasdaq Composite, on Wednesday, produced all-time intraday and all-time closing highs.
Mean Street
This hole is here and now, my friend, it ain't once upon a time
It's all over but the shouting, I've come to take what's mine
We're searching for the latest thing, a break in this routine
Talkin' some kicks, ones like you ain't never seen
This is home, this is Mean Street
It's our home, the only one I know
- Van Halen, Van Halen, Anthony, Roth (Van Halen), 1981
All About the Macro
Tick, tick, tick, tick.... the clock struck 08:30 Wednesday morning. The noise. The gasp. Primal Scream. Maybe, just maybe the economy isn't so hot. That's only a dead horse I've been beating almost in isolation for months.
No, Wednesday was not about April CPI. What? The guys on the tube said... Knock it off. I know what the guys on the tube said. They have a narrative to sell. These are the same guys who send the questions to their legal departments to the financial media and memorize their answers. This is the same financial media that's fine with that relationship.
Yes, April CPI at the headline printed at month-over-month growth of 0.3%, slowing from 0.4% in March and at 3.4% year over year, slowing from 3.5% in March. Consensus views had been for 0.3% and 3.4%, respectively, so this should have been priced in.
April core CPI hit the tape at monthly growth of 0.3%, flat with March, and annual growth of 3.6%, slowing from 3.8% in March. Once again, these numbers printed precisely upon consensus. In fact, there had been whispers that the core print might cross at a 0.2% month-over-month pace, so the markets had a right to almost be disappointed.
Don't give me this nonsense that markets roared because April inflation, while certainly not dead, did exactly what was expected by a majority of economists. Oh, yeah, portfolio managers went all in on stocks and debt securities because used-car prices contracted by 1.4% month over month.
Where is April consumer-level inflation without used cars? Up 0.4%? More? Maybe 0.5%. Core CPI Services also known as SuperCore CPI printed for April up 0.5% m/m and up 5.05%. Those are the hottest prints for SuperCore in a full year, so no... cowboy, the disinflationary trend has not been reborn.
Sorry, you were misinformed. About inflation, and about why markets rallied on Wednesday.
So, Why Did 'They' Buy the Market?
Because, Tex, the economy is falling off of the turnip truck. April Retail Sales hit the tape with month-over-month growth (or contraction) of 0.0%. This was down from a downward revision of 0.6% for March and well below the 0.4% growth that economists were looking for. Ex-Autos, April retail sales printed at growth of 0.2%, in line with expectations, but well off of the 0.9% pace of March.
Even better or is it worse. April retail sales, ex-autos and gasoline crossed at -0.1% m/m. That's right. Outright contraction, down from 0.7% and below the paltry 0.1% growth that Wall Street had been looking for.
"Boo!" cried the crowd. "Hiss!" sneered the good people of Gotham. "But wait, maybe this means the Fed will have to cut short-term rates" yelled the nerd. "Hooray!" screamed the net long crowd. "Take' em" shouted those currently subordinate to that net-long crowd. So, "take 'em" it was decided would be the phrase of the day and take them "they" did. Higher. Ever so higher.
For April, inside the retail sales print, which is not adjusted for inflation, gasoline sales were up 3.1%. Oh boy. Motor vehicle sales contracted along with sales of furniture, personal care products, general merchandise, and even non-store or internet sales. In short, those good people, who have run up their credit-card balances after having run out of their pandemic helicopter-produced savings, are feeling pretty poor.
The Fun Index is what I refer to as sales of sporting goods, hobbies, music, and books, because the category is purely discretionary in a good measure for how willing individuals are to spend money on themselves. When this number goes negative, it can mean that individuals are spending money only on what is necessary to maintain their household's standard of living. The Fun Index was down 0.9% in April and is down 4.7% year over year. 'Nuff said.
In Addition...
The Empire State Manufacturing Index hit the tape at -15.6, well below expectations and in a state of contraction for a sixth consecutive month. The manufacturing base in the New York district continued to see contractions in New Orders, Shipments, Unfilled Orders, Number of Employees and Average Workweek.
What categories did move higher for New York's manufacturers? Prices, both paid and received. How nice.
Then It Happened
Mid-Wednesday morning, the Atlanta Fed tweaked the input for real personal consumption expenditures significantly lower for its GDPNow model for the second quarter. This was partially offset by an increase in the input for real gross private domestic investment. The result was a downward revision to the model's estimate for Q2 GDP from 4.2% to 3.8% (q/q, SAAR).
Wall Street's rally accelerated. Was 4.2% absurd? Probably. Is 3.8% still ridiculous? Probably. Atlanta will revise the model again later today (Thursday) after the Census Bureau releases April Housing Starts and the Fed releases April Industrial Production.
Marketplace
Every single major and mid-major equity index that I follow closely, closed in the green on Wednesday, led by the Philly Semiconductors at +2.88%. That group was led in a northerly direction by Advanced Micro Devices AMD and KLA Corp. KLAC. Those two were up 4.25% and 4.08%, respectively.
All 11 S&P sector SPDR ETFs ended up for the day on Wednesday led by Technology XLK and the REITs XLRE as four of these funds gained at least 1% for the session. Staples XLP finished in last place for a second straight day.
Winners beat losers by roughly 7 to 3 margin at the NYSE and a 5 to 3 margin at the Nasdaq. Advancing volume took just a 51.9% share of composite NYSE-listed trade and a commanding 72.1% share of composite Nasdaq-listed trade. Remember that the primary meme stocks are listed at the NYSE, and these stocks were taken out to the woodshed on Wednesday. That suppressed advancing volume and probably aggregate volume for names listed at the corner of Wall and Broad.
Speaking of aggregate trading volume, NYSE-listed volume contracted by 8.5% day over day, while Nasdaq-listed volume screamed even higher (+17.4%) than where it had been on Tuesday. The Nasdaq has been the epicenter of this portion of this rally. Wednesday was the most active day across the membership of the Nasdaq Composite since February of 2021.
Really? A September Cut?
Futures markets trading in Chicago are still pricing in a 73% probability for a first rate cut of the "coming" cycle on September 18, which would be about six weeks ahead of the U.S. presidential election. I don't see that unless either the U.S. economy is truly in crisis mode within four months from now, or the Fed publicly sheds any pretense regarding its independence and picks a side in that upcoming election.
Mystery Revealed
Did anyone out there have Chubb CB on their Berkshire Hathaway BRK.A BRK.B mystery stock bingo card?
No? Me neither.
Economics (All Times Eastern)
08:30 - Initial Jobless Claims (Weekly): Expecting 220K, Last 231K.
08:30 - Continuing Claims (Weekly): Last 1.785M.
08:30 - Housing Starts (Apr): Expecting 1.42M, Last 1.321M SAAR.
08:30 - Building Permits (Apr): Expecting 1.48M, Last 1.467M SAAR.
08:30 - Import Prices (Apr): Expecting 0.2% m/m, Last 0.4% m/m.
08:30 - Export Prices (Apr): Expecting 0.2% m/m, Last 0.3% m/m.
08:30 - Philadelphia Fed Manufacturing Index (May): Expecting 7.7, Last 15.5.
09:15 - Industrial Production (Apr): Expecting 0.2% m/m, Last 0.4% m/m.
09:15 - Capacity Utilization (Apr): Expecting 78.4%, Last 78.4%.
10:30 - Natural Gas Inventories (Weekly): Last +79B cf.
The Fed (All Times Eastern)
10:00 - Speaker: Reserve Board Gov. Michael Barr.
10:30 - Speaker: Philadelphia Fed Pres. Patrick Harker.
12:00 - Speaker: Cleveland Fed Pres. Loretta Mester.
15:50 - Speaker: Atlanta Fed Pres. Raphael Bostic.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: DE (7.93), WMT (0.52)
After the Close: AMAT (1.99), TTWO (0.08)
At the time of publication, Guilfoyle was long AMD and BRK.B equity.
