Jim’s Notes – Economic Data Upends Stocks

Moving the Market – June 3rd

The markets repeated Friday’s action with early selling and a late-day rally to close in positive territory. It was a news-driven kind of day with plenty of headlines. Evidently, BRKA went to zero on a glitch in the NYSE system. That got fixed and those who bought shares for $100 will not likely be honored… if they are, relax and enjoy the $631,000 gain per share. OPEC extended its cuts into 2025 and oil dipped 4% in response. NVDA unveiled the next-generation AI chip plans to stay ahead of competitors AMD and INTC. and the stock rose 4.9%. GameStop was back in the headlines opening up 70+% before closing up 21% and the ‘game’ continues. Otherwise, it was a choppy day of trading with winners and losers on the day. The economic data was disappointing once again with the ISM Manufacturing dipping to 48.7 versus 49.8 expected. New orders fell to 45.4 from 49.1 in April and 54.6 in March… going in the wrong direction. The sector continues to show contraction which is not a good sign for the economy. Construction spending declined 0.1% versus a rise of 0.2% expected, the third month of negative performance. The downside was led by IYT, IWM, XLU, and XLE. The Dow was slightly lower on the day as it failed to follow through on the bounce from Friday. Technology remains the shinny penny and the question is can it bring the rest of the market higher with it? With all the economic data on tap this week we will see if it offers any hope along with technology stocks. With the exception of the Dow the indexes remain near their highs and we continue to look for the next catalyst up or down.

The major indexes closed the day mixed as the broad markets bounced off the lows of the day. The leaders were narrow with XLV and XLK closing higher. The laggards held the markets down with XLE, XLI, and XLU leading the downside. The The headlines ruled the day offering up winners and losers. It is currently a market where the parts are better than the whole. The NASDAQ closed up 0.5%, DIA was down 0.3%, and the SP500 was up 0.1%. The major indexes closed mixed on the day. The SOXX was up 0.1%. Small Caps (Russell 2000) were down 0.5%. The ten-year treasury yield was 4.4% down 11 bps for the day. Crude Oil (USO) was down 4%. (UGA) was down 3.4%. Natural gas (UNG) was up 7.5%. The dollar was down 0.5%. Plenty to deal with moving forward as we manage our money and emotions relative to the current environment.

Tuesday Outlook: More of the same… indecision is driving the markets for all the same reasons we have discussed. Without some clarity or a defined catalyst, the markets are stuck near the highs. I would like to say the bounce higher continues, but we will have to see how things unfold. We have not done one damn thing to change the course of the economy other than argue about who or what is right. As my coaches told me, “You have to swing the bat if you are going to get a hit.” Too much government spending… 34.4% of GDP is the government! The unwillingness to break the back of inflation is a challenge for the Fed, thus inflation sticks around. Liquidity remains an ongoing issue as the Fed builds money supply behind the scenes. Treasury auctions have been awful at best. The VIX rose to 14.3 showing a jump in anxiety early in the trading day but then closed at 13.1 on the late-day rally… indecision at its best. The focus is clearly on the Fed and interest rates. Growth is still a big question mark overall. The ISM Manufacturing data validated that. The key is to follow the trends up or down. 1) Watching the dollar, does it bounce back from recent selling? Yes, thus far. 2) Interest rates, dipped back to 4.4% on Monday. 3) Crude oil fell on OPEC leaving production cuts into 2025. 4) Natural gas jumped 7.5% on Monday… media speculation driving prices. 5) DBA climbing higher on wheat and coffee… inflation. 6) The answers are unfolding… we have to take what is offered up or down.

Headlines Worthy of Note:

S&P valuations are a little crazy… will people keep paying the excessive premium for future earning? Good question and one we always defer to the charts for direction. Follow the trends speculating what is “fair value” never ends well.

The battle over minimum wage laws and corporations continues to escalate. Uber and Lyft shut down in Minneapolis due to a new law that would require them to pay minimums that they are unwilling to do. The battle over wages is heating up across the country thanks to inflation. The endless topic of living wages won’t end with Uber or Lyft.

Biden hasn’t met a tax he didn’t like and he is on a renewed mission to create a “fairer” tax system. First, let’s be clear, a “fair” is something you attend for amusement. There is no fair, unless you create a flat rate tax of 15% for argument’s sake. Then everyone would pay a flat 15% tax on earnings. But, that will never happen. Thus his proposal to increase capital gains tax to 44.6% is insane. Yes, the wealthy shareholders may pay more tax, but will they? Under current law, you would have to take away the deductions and other allowances. This argument will be waged for generations, but if the tax increases it will hurt the already deviated middle class.

Quote of the Day: “The greater our knowledge increases the more our ignorance unfolds.” — John F. Kennedy.

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