Jim’s Notes – Weak Economic Data Triggers Selling

Moving the Market – April 30th

Chicago PMI and Employment Cost Index are ugly at best, triggering selling on Tuesday. The NASDAQ, SP500, and Dow all closed lower on the day. Needless to say, it was a news-driven day as stocks attempted to deal with the news. A look at the intraday chart shows the tug-o-war between the buyers and the sellers with the seller eventually winning on the day. Digging into the ECI data we see it rose the fastest in 18 months and disrupts the Fed’s efforts to tame inflation. The index increased 1.2% versus 0.9% prior. Benefits rose 1.1% versus 0.7% prior. Wages gained 1.1% versus 1.1% prior. The 57% gain in benefits was the piece that impacted the markets the most. Powell views this data as a leading indicator for services sector inflation… again the FOMC meeting on Wednesday should give indication of this and the committee’s views. Then there was the Chicago PMI at 37.9 versus 44.5 expected and 41.4 prior. The data showed the sharpest decline in Midwest manufacturing since the financial crisis. The housing price index was up 1.2% versus -0.1 in January… not good relative to inflation either. Consumer Confidence dropped from 104.7 in March (103.1 revised) to 97.0 in April… bad news impacts consumers along with rising prices. Needless to say, it was not a great day for data. After-hours Amazon announced earnings which were better than expected as they cut costs to increase the bottom line. The stock was up modestly on the news. Wednesday promises to ba another day full of data along with the FOMC meeting and Mr. Powell’s comments. The Fed has some tough decisions to make relative to inflation. They can break it by hiking rates and crashing the economy or they feed the system and raise debt beyond affordable levels for the government and the current system. Maybe the current administration will sober up and realize things really aren’t as great as they espouse.

The major indexes were lower on the day as investors got a dump truckload of bad data relative to inflation. Energy, consumer discretionary, and technology led the markets on the downside. The NASDAQ closed down 2%, DIA was down 1.4%, and the SP500 was down 1.5%. The major indexes closed lower with volatility moving higher at 15.6. The SOXX was down 2.1%. Small Caps (Russell 2000) were down 2%. The ten-year treasury yield was 4.68% up 7 bps for the day. Crude Oil (USO) was down 1.4%. (UGA) was down 2%. Natural gas (UNG) was down 3.1%. The dollar was up 0.6%. We are focused on managing the risk in the current environment and letting it unfold.

Wednesday Outlook: Markets were lower on Monday keeping the downtrend alive and well. Buyers and sellers battled it out throughout the day the sellers winning overall. As we head to Wednesday we get more economic data and the FOMC rate decision and comments. The outlook remains challenging at best. As we have stated many time what is being said doesn’t line up with the numbers. The facts/numbers have started to show what we have said all along… not a matter of being right about this, it is a matter of being on the right side of the trade. We take what the markets give short and long-term. Stay focused and most of all manage the risk.

Chart of Sectors: This chart starts at the previous high for the S&P 500 index on March 28th. Watching the bounce from the April 19th low currently for the leadership as the selling on Tuesday changed the view.

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

Headlines Worthy of Note:

The Fed has continued to focus on inflation at every level but one that has continually interested many is full employment without wage inflation. The Employment Cost Index data released on Tuesday showed inflation at the employment level in a big way and disrupted the markets. This is sure to be addressed in the FOMC meeting on Wednesday and Powell’s comments. Follow this link to and article about BLS employment data. It is an older article but offers a good explanation of cause and effect as it relates to the Fed.

The Biden Administration is considering banning imports of Russian uranium… when does this insanity stop? I assume that Congress placed their trades before the announcement with XEC up 6.1% and UEC up 4.8%.

Tesla (TSLA) jumps 15% after passing a key hurdle to roll out an advanced driver-assistance vehicle. The stock jumped 15% on the day. Watching how this storyline unfolds.

President Biden will continue to use TikTok to campaign even after banning it in the US. This was reported by the Financial Times. The law calls for TikTok parent ByteDance to divest itself from the app within the next year. If not, it will be banned in the US… The deadline is January 19th coincidentally the day before the presidential inauguration. Go figure.

Earnings from AMZN and AAPL on deck. AMZN beat estimates on Tuesday after hours.

Quote of the Day: “Always borrow money from a pessimist. He won’t expect it back.” — Oscar Wilde.

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