Jim’s Notes – Inflation data sinks stocks

Moving the Market – April 10th

The markets didn’t like the hotter-than-expected CPI data which sparked a broad sell-off for the indices. Inflation is higher overall, but the core shows even higher household necessities. The sticky factor is alive and well. Throw in car and homeowners insurance rates spiking and the data gets worse. Property taxes are rising as municipalities try to keep pace with inflation. There are increases at so many levels it is hard to grasp the depth of how much inflation is growing. The Dow sank to a two-month low as the SP500 and NASDAQ both fell below the 20-day MA. A review of the charts shows large caps held their range while midcaps, transports, and healthcare all broke lower. The yield on the 10-year bond jumped to 4.56% impacted by the CPI data and the 10-year auction which was horrible. TLT tanked on the news helping our TMV position. Interest-sensitive sectors like banks, real estate, and utilities pushed lower breaking key support levels. The dollar was up 1% in response to the move in interest rates. Small caps dipped below the 50-day MA. Not a great day for the markets overall and plenty of debris to filter through. The challenge for Thursday is PPI is due before the open. Crude is up 24% for the first quarter and it should impact inflation. This puts the markets in a tough spot relative to support and the trend. The downside risk has been growing as we have discussed. Do we head lower or does the PPI find a way to reverse the current thinking and momentum? Friday kicks off earnings with key financial stocks reporting. Look for the opportunities in the moves and manage the risk accordingly.

The indexes were negative overall. The components moving higher only added to the negative results such as interest rates, the dollar, crypto, and crude oil. The biggest losers were REITs, banks, small caps, and transports. The money flow fell. The RSI moved below 50. One sector closed in positive territory. The NASDAQ closed down 0.8%, DIA was down 1.1%, and the SP500 was down 0.9%. The major indexes closed lower. The SOXX was down 1.8%. Small Caps (Russell 2000) were down 2.6%. The ten-year treasury yield was 4.56% up 20 bps for the day. Crude Oil (USO) was up 1.1%. (UGA) was up 0.8%. Natural gas (UNG) was down 1.1%. The dollar was up 1%. We are focused on managing the risk in the current environment and letting it unfold.

Thursday Outlook: All eyes and talk will be about the PPI data reports at 8:30 am ahead of the opening. The expectation is for the M/M number to rise 0.3% and the core to rise 0.2%. The Y/Y number is expected to rise to 2.3% from 2%. If it is higher the markets will not handle the news very well. It is important to note the expected data is already higher than last month. This shows economists believe inflation is moving higher already. Thus, a higher number is even more impactful to the investor’s psyche as seen with the CPI data. Bank earnings start on Friday for the first glimpse at first-quarter earnings. Technically speaking the SP500 and Dow closed near their respective 10-day MA. The shift in the charts on Wednesday was negative adding to that on Thursday would change the dynamics of the current environment. The patterns are weaker, trendlines are breaking, and volatility is rising. All of this makes us cautious, we hit stops on positions as we manage the risk and look for opportunities. Short side trades have been added and we will add more if the trends continue to reverse.

Headlines Worthy of Note:

Proposed new banking rules… with liquidity an issue for banks why not put in some guidelines for creative accounting. Since the financial crisis the current “system” has created ways to keep the “system” and its members solvent and benefitting from being a part of the “system”. Thus, with the current balance sheets being impacted by higher interest rates ala the Fed, we need ways of imparting liquidity and thus, banks can buy treasury bonds and without any mark to the market rules. In turn, no harm to your balance sheet or credit and in turn keep your status with the Fed and Treasury in good standing. It is good to be a part of the system!

The 10-Year auction was described as catastrophic. The $39 billion offering on Wednesday wasn’t pretty. The stop yield at 4.56% was well ahead of the 4.16% in March. It was the highest yield posted since 10/2023. The tail, or the difference in yield offered versus expected – was bad at 3.1 bps versus 0.9 bps in March, it was the third largest on record. The auction on exacerbated the move in bonds on the day.

Metal prices are higher and heading higher based on the current speculation from analysts. Precious metals gold and silver continued higher on Tuesday as the charts continued their verticle moves. CDE, HMY MUX all added to the upside in Gold. AG and PAAS rallied as well on the day. Industrial metals FCX and SCCO gapped higher on volume as copper continued to rise. STLD, MT, TMC, CENX, and AA rested on the day but the charts still show solid upside trends.

TSLA – Elon Musk stated that Tesla would launch robotaxis in August. The stock was up 2.2% on the news. The bottoming pattern on the chart is worthy of attention. The downside trend remains in play.

Charts to Watch: See Notes on “Reality of the Markets” & “Jim’s Beliefs About the Market” pages…

Quote of the Day: “Frisbeetarianism is the belief that when you die, your soul goes up on the roof and gets stuck.” — George Carlin.

Note of Changes on Website: The ‘Weekend Update & Outlook’ will now reside on the “Reality of the Markets” page. It will be updated throughout the week as needed relative to market changes.

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