Jim’s Notes – Hot PPI Data Ignored by Investors

Moving the Market – May 14th

PPI was up 0.5% versus the 0.3% expected and stocks rallied on Tuesday almost to a new all-time high. Some were bold enough to credit the lower revisions to the March data as the rationale for the response. If anything that made the hotter April figure worse. But who expects understanding numbers a requirement? Semiconductors led the move higher taking the NASDAQ with it. Technology led the S&P 500 index as interest rates again retreated to 4.45% in conjunction with the stock rally. Now all eyes shift to the CPI report on Wednesday expectations are for the rate of inflation to remain the same at 0.4% in April. The outlook for rate cuts to begin is still in September… to me, it is amazing how fixated the data, news, analysis, and outlook are all hanging on what the Federal Reserve does relative to interest rates. Shouldn’t we be looking at the composite of the data and what the trend in the economy is… then make projections as to what will happen based on facts versus speculation? The simple answer would be yes, but in a world driven by emotions, the facts don’t matter until they do. The reality is inflation is still rising despite the analysts on Wall Street and the White House stating the only issue is shelter/housing inflation… With that in mind, the NASDAQ is roughly 4 points from the March intraday highs and has erased the downside move to the April lows. Where do we go from here? Follow the trend and the money, for now, that is higher. Like everyone else, we will look at how the CPI numbers performed in April and watch the reaction of the market taking what is offered as a result short term.

The major indexes were higher in response to a negative PPI report… seems normal these days. The leadership came from small caps 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. Nine sectors closed in the green. The NASDAQ closed up 0.7%, DIA was up 0.2%, and the SP500 was up 0.4%. The major indexes closed higher. The SOXX was up 1.6%. Small Caps (Russell 2000) were up 1%. The ten-year treasury yield was 4.45% down 3 bps for the day. Crude Oil (USO) was down 1.2%. (UGA) was down 1.9%. Natural gas (UNG) was down 0.8%. The dollar was down 0.2%. Plenty to deal with moving forward as we manage our money and emotions relative to the current environment.

Wednesday Outlook: Broad indexes await the CPI data reports for “clarity” relative to the Fed. Technology and small caps led the upside Tuesday… The leadership is shifting back towards growth stocks in an environment that points more to defensive or value stocks… thus, the facts don’t matter currently, only what analysts and traders think, or the memes! 1) Watching the dollar, gold, interest rates, and crude oil. Commodities are mixed. 2) Mega caps have been lagging the last five 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 2% (it was up 1.9% last week) and large caps have lagged as well. 4) Rotation has been seen of late, treasury bonds, and international via FXI, EWH, IEV, EWU, EEM, and others. Bottom line look where money is migrating and follow it. 5) SOXX moved above the $222.25 level… does it resume leadership?

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. IYZ, XLK, and XLF taking the leadership role. Watching how this unfolds moving forward.

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

Headlines Worthy of Note:

Powell was speaking at a conference on Tuesday and stated that inflation is falling more slowly than expected, but has confidence that inflation will move back down. Just admit what the numbers say and stop pontificating about what you think. Inflation is higher… yes, it has dropped from the highs, but it has also risen off the lows of last fall.

Congress wants to spend $32 billion over the next three years to develop and safeguard AI. This is the same Congress that knows that Social Security is going broke, spent $3.2 trillion over the last three years to rescue us from the flu, and 2.3 trillion on a new infrastructure bill that somehow has not improved our infrastructure. Sounds great!

Alibaba (BABA) stock slides on missed earnings but sales rose 7%.

Quote of the Day: “Once, during Prohibition, I was forced to live for days on nothing but food and water.” — W.C. Fields.

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