Jim’s Notes – Stocks bounce back from early selling

Moving the Market – April 25th

Weaker than expected first quarter GDP and higher PCE quarterly data didn’t settle well with investors on Thursday. Throw in an 11% decline in META and it made for a challenging day for stocks. The initial reaction at the open was selling with the NASDAQ down 2.3% in the first five minutes of trading. After the first half hour of trading bids returned and the makes drifted higher throughout the day with the NASDAQ down just 0.6% at the close. Once again the markets could not sell off and continued the downside move. This is thanks to liquidity provided by the ‘system’ that cannot fail. The Fed and Treasury will and are finding ways of keeping the money flowing. Thus, the institutions understand the game and play according to their rules. The activity on Thursday keeps things interesting. My preference would have been for a good cleansing and a 10-12% push lower from the highs two weeks ago… but we didn’t get that. Now we have to see how Friday plays out relative to the buyers and sellers. Google was up big after hours on solid earnings and talk of AI paying off. Amazon equally had a big quarter and was higher… this will favor the buyers and technology stocks in Friday’s trading. Plenty of economic data as well prior to the opening with PCE and consumer sentiment. Expectations are for inflation to show in the PCE data… my expectation, is unless the administration decides to cover it up. Inflation is alive and well if you have purchased anything in the last few months. All said we head to Friday with an eye on the upside to start the day, but then we will watch to see if there is any selling as the day progresses. Follow the money it always knows.

The major indexes were lower on the day following negative news from META and hotter inflation data. Telecom, small caps, and healthcare led the downside. The NASDAQ closed down 0.6%, DIA was down 0.9%, and the SP500 was down 0.4%. The major indexes closed lower with volatility moving to 15.3. The SOXX was up 1.8%. Small Caps (Russell 2000) were down 0.6%. The ten-year treasury yield was 4.70% up 5 bps for the day. Crude Oil (USO) was up 1%. (UGA) was up 1.1%. Natural gas (UNG) was up 0.1%. The dollar was down 0.2%. We are focused on managing the risk in the current environment and letting it unfold.

Friday Outlook: Markets were lower on Thursday but it could have and should have been worse. But the buyers were ready to step in and save the day. After-hours activity was of interest with AMZN and GOOGL moving higher on solid earnings reports. That should favor the Mega caps on Friday. Economic data out early on Friday will have some influence since it is the favorite barometer for the Fed on inflation. There could be a shift in money flow back to the mega caps,etc. Watching outflows from the outliers… gold, crude, and other commodities… should see outflows but they have held up well despite other data. Follow the money.

Chart of Sectors: This chart starts at the previous high for the S&P 500 index on March 28th. Note that XLE has been the clear leader from that point. It joined the selling and is now moving higher along with XLU. Some of the defensive sectors have ticked up… XLP, XLF, XLI. Leading the downside currently is XLK and XLY, but they have bounced and watching the April 19th low as a potential pivot point. NOTE: Ten of the eleven sectors have bounced.

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

Headlines Worthy of Note:

MarketWatch reported the Treasury is ready to implement a program to ‘make the bond market more resilient.’ The Treasury is planning what is called the first Treasury buybacks in 20 years. Why? Wait for it, ‘support liquidity in the Treasury market.’ Why would we need to do this? Simply put, nobody wants the US debt paper. We are essentially going down the same path as Japan. For further rationale on this move by the Treasury, the New York Fed will conduct the Treasury buyback operations. Imagine the Fed and the Treasury teaming up to monetize debt the Treasury issues. Again the question is why? Let’s turn our attention to the BUDGET that the Biden Administration released on Monday… their own figures on the low side would grow the debt to $54 trillion versus the $34 trillion currently over the next 10 years. That is $2 trillion per year for those who don’t want to do the math. Those are insane numbers from the crazy people running the country currently. Talk about the highway to HELL, we are currently on it going as fast as we can.

Earnings from META pushed the stock down more than 14% after hours. Maybe the headline on Monday that Mark Zuckerberg was ahead of Elon Musk in total net worth was a jinx… he won’t be after the open on Thursday. Meta will be down more than $200 billion in market cap on Thursday. The guidance of higher expenses and lighter revenue didn’t sit well with investors.

Quote of the Day: “A pessimist is just a person who has to listen to too many optimists.” — Don Marquis

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