Jim’s Notes – Intraday Volatility Continues

Moving the Market – June 4th

The markets continue with intraday volatility and not much upside to show for the efforts. The major indices all closed in the green barely. four of the eleven sectors closed higher. The dollar was lower, oil lower, precious metals lower, bonds higher, and that reversed stocks off the lows intraday. Bonds were the key driver with the yield on the ten-year bond moving down to 4.33%. Semiconductors closed lower testing the 20-day MA again. The troubled sectors were small caps and transports both lower and not looking good on the charts. Midcaps were lower as well. The JOLTS job openings fell to the lowest level in three years showing the economy continues to slow. All said the whisper on the street was things look good for the Fed to cut rates. There were also talks of the European Central Bank talking about rate cuts happening soon. With all the news and data pointing towards rate cuts the markets bounced off the intraday lows. This raises the question, with all this energy, effort, and hope put into rate cuts, what happens when they actually cut rates? Does everything magically become good again? It a question to ponder and be aware of the markets getting what they want. The anticipation in this case may be better than the event itself. It is also important to note the Fed is building money supply. It rose $25.8 billion in April the highest in the last 12 months. It was a day of key data points mattering enough to keep he uptrend alive. We continue to focus on the trend and manage the data along with the key points of catalyst short and longer term.

The major indexes closed the day higher as the broad markets bounced off the lows of the day. The leaders were narrow with IYR and XLP closing higher. The laggards held the markets down with IJR, XLB, and XLE leading the downside. The economic data and interest rates ruled the day. It is currently a market where the parts are better than the whole. The NASDAQ closed up 0.1%, DIA was up 0.3%, and the SP500 was up 0.1%. The major indexes closed higher on the day. The SOXX was down 0.7%. Small Caps (Russell 2000) were down 1.2%. The ten-year treasury yield was 4.33% down 7 bps for the day. Crude Oil (USO) was down 1%. (UGA) was up 0.5%. Natural gas (UNG) was down 4.6%. The dollar was up 0.04%. Plenty to deal with moving forward as we manage our money and emotions relative to the current environment.

Wednesday 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. 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 14.1 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. Economic data continue to confirm that. The key is to follow the trends up or down. 1) Watching the dollar, does it bounce back from recent selling? Watching response to Monday selling. 2) Interest rates, dipped back to 4.33% on Tuesday. 3) Crude oil fell on OPEC leaving production cuts into 2025. Down 4% last two days. 4) Natural gas jumped 7.5% on Monday… Fell 4.6% on Tuesday, 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:

Elon Musk ordered Nvidia to ship thousands of AI chips reserved for Tesla to X and xAI. Like him are not, he is a smart business person relative to understanding future growth and opportunity. The sector remains in a growth mode for the foreseeable future.

JOLTS job openings and other labor data were lower helping the speculation towards rate cuts again.

Money Supply (M2) rose $25.8 billion in April… The Fed continues to keep liquidity in the system. If you want to stamp out inflation this number should be falling like it was in 2023. It hit the low in October and has steadily risen since. This was necessary to keep banks solvent, but the repercussion is it allowed inflation to creep higher. Worth watching as we approach any type of potential rate cuts.

O’Canada government is taking money from streaming services. Interesting take on a social government believing they can take whatever they desire. It will be interesting to see how NFLX and friends respond to this.

Quote of the Day: “Prejudice is a great time saver. You can form opinions without having to get the facts.” — E. B. White.

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