Rising Yields Weigh on the Market Ahead of the Fed Beige Book
Plus, some quick hits on Apple and Morgan Stanley.
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* Rising yields are taking some wind out of the market.
* China’s economy and oil could be headwinds for inflation.
* Fed Beige Book out at 2 pm – here’s what we’re watching and our plan.
* Portfolio quick hits - Apple, Morgan Stanley.
The market opened lower as investors come to grips with rising Treasury yields, including those for the closely watched 10-year. Comments yesterday from Minneapolis Fed President Neel Kashkari that he will certainly not pencil in more than two rate cuts this year caught the market’s ears.
Meanwhile, the IMF upgraded its forecast for China’s economy, now seeing it up 5% this year from 4.6% following what he described as a “strong” March quarter. We shouldn’t be overly surprised by the IMF’s upgrade as it follows a string of other economists, once again showing the IMF tends to lag with its forecasts.
We see China’s improving economy, one that is benefiting from all the stimulus efforts being thrown at it, as a positive for the global economy, but also a factor that is likely to be a headwind for progress on inflation. How strong of a headwind will hinge on whether the improvement in China’s economy is sustainable. We’ll get an indication when the May Caixin Manufacturing & Services PMI report is published in early June.
We are seeing oil prices step up again this morning following another attack on a ship in the Red Sea, but also the start of the summer driving season and expectations for OPEC+ to extend output cuts through the second half of the year. Good for our shares of the Energy Select Sector SPDR Fund XLE, but also another headwind for inflation. Other than upcoming economic data, the next item to watch as it relates to oil will be OPEC+’s next meeting on June 2.
Getting back to the US economy, we’ll get some regional Fed manufacturing and services reports for May, but the major focus will be the latest edition of the Fed Beige Book that comes out at 2 pm ET. Inside this anecdotal collection of regional Fed bank reports, what’s said about the strength of the economy, job creation and wage gains as well as inflation will be what we focus on. The findings could have an impact on expectations for Friday’s April PCE Price Index data.
We have our shopping list, which includes the shares of Labcorp LH, Waste Management WM, and a few others. Based on what develops in the market, we may put some cash to work.
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- Signals From Our Investing Notebook
Portfolio Quick Hits
Bank of America reiterated its Buy rating and $230 target for Apple AAPL, sharing it expects AI-enabled iPhones to drive a multiyear upgrade cycle. It seems we’re increasingly less alone in this thinking. What BofA didn’t do was connect the dots, sharing how that upgrade cycle is also positive for our shares of Qualcomm QCOM and Universal Display OLED.
While eyes are on the $22.5 billion deal between ConocoPhillips COP and Marathon Oil MRO, we’ll point out that Morgan Stanley MS advised Marathon on the transaction, which should help boost its investment banking fees. Morgan Stanley also advised Nordson NDSN on its recently announced acquisition of Atrion Corp. ATRI.
At the time of publication, TheStreet Pro Portfolio was long XLE, LH, WM, AAPL, QCOM, OLED, MS.
