Jim’s Notes – Flat Trading Day Ahead of Key Data

Moving the Market – May 13th

Overall the markets were mixed and flat as investors awaited the PPI and CPI data. The major indexes were in a narrow trading range all day without news or earnings to drive activity. The excitement was the GME was up 74% and AMC was up 78.3% on the day as the Meme stocks returned. The real interest for the markets is inflation. The expectations are for things to continue heating up as pricing pressure is back. On Monday both BAC and GS stated they see a downside CPI based on declining rental rates. If that is true we would see market rally in response as rate cuts would be back on the table for the Fed. Again, that is all speculation. We will see how that unfolds in the next two days. As it relates to inflation, economics 101 shows that inflation is caused by a contraction of supply and an abundance of money chasing fewer goods. It also states that the solution is to increase the supply of goods and services to absorb the excess money. For a lesson on this, we simply need to study the early 80s when we did exactly that to break the inflation cycle. The challenge is having an administration and Congress that understand economics versus politics. The New York Fed Survey of Consumer Expectations for April… Inflation expectations are rising across the data. The 1 and 5-year projections are both higher along with missed debt payments rising. The restaurant chains reported earnings and updates show a drop in patrons across the board, but most noted in the lower income groups. Bloomberg reported foot traffic for fast-casual dining fell 9.5% in March. Red Lobster is considering bankruptcy and TGI Friday’s is closing stores. The economic slowing keeps showing up in the data reports. Plenty to ponder as we move through a week of news that will impact the direction short term.

The major indexes were mixed and flat on Monday as we await inflation data. The leadership came from telecom and technology. The direction short term will come down to the CPI data and how it impacts the Fed’s future actions on interest rates. Three sectors closed in the green. The NASDAQ closed up 0.29%, DIA was down 0.2%, and the SP500 was down 0.02%. The major indexes closed mixed. The SOXX was up 0.2%. Small Caps (Russell 2000) were up 02.%. The ten-year treasury yield was 4.48% down 2 bps for the day. Crude Oil (USO) was up 1.1%. (UGA) was up 0.5%. Natural gas (UNG) was up 4.8%. The dollar was down 0.03%. Plenty to deal with moving forward as we have inflation data on tap next week.

Tuesday Outlook: Broad indexes await the PPI & CPI data reports for some clarity relative to the Fed. Technology and mega caps were slightly higher on Monday as we look for their leadership if the indexes are to keep the upside in play. 1) Watching the dollar, gold, interest rates, and crude oil. 2) Mega caps have been lagging the last four trading days, if we are going higher they will need to participate in leadership. 3) Since March 1st the S&P 500 index is up just 1.6% (it was up 1.9% last week) and large caps have lagged as well. 4) Rotation has been seen in commodities (stalled near term), treasury bonds, and international via FXI, EWH, IEV, EWU, EEM, and others. Bottom line look where money is migrating and follow it.

Chart of Sectors: The scatter chart below shows the activity of the sectors relative to the S&P 500 index. The red down trendline was broken and the leadership is clear. Watching how this unfolds moving forward.

Charts to Watch: See Notes on “Reality of the Markets”

Headlines Worthy of Note:

Biden raises tariffs on $18 billion of Chinese imports; EVs, solar panels, batteries, and more. That is a solid move for the trade deficit… This is going to get interesting moving forward.

Apple is said to be near a deal to add AI features to the iPhone. The stock was up on Monday breaking higher from a flat pattern. Watching how this along with the other sixty stories impacts their stock. Apple cleared $185 entry point on Monday.

Brazil’s orange output to hit 30-year low... what will happen to citrus prices as a result? More inflation on the way?

Stock buybacks are back! The trend in the first quarter hit the highest level in five years.

Taiwan Semiconductor sees sales jump 60% amid AI boost… this should impact the stock in trading on Friday along with SOXX.

Quote of the Day: “If you want to kill any idea in the world, get a committee working on it.” — Charles Kettering.

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