Jim’s Notes – Auction Sends Yields Higher

Moving the Market – May 28th

The markets were mixed overall to start the week. Higher interest rates hampered the market action caused by a weak treasury bond auction. The two and five-year bond auction was weak at best and pushed the yield on the ten-year bond to 4.55%. As we know the markets don’t like nor do they want higher rates. In turn, stocks struggled with the exception of NVDA which led the NASDAQ to new highs almost single-handedly. As we expected commodities turned higher again with wheat hitting a two-year high as concerns of a shortage are priced in. DBA was up 2.1%. Crude oil rose 3% with OPEC+ meeting on production levels. Gold was up 1% and silver climbed 5%. Base metals (DBB) were up 2% with copper and steel higher. The Fed continues to state the same battle line: they will hold higher rates for longer until inflation shows a steady decline. Economic data showed housing prices continued to rise up 0.3% in March and up 7.38% the last year. That is the fastest increase since October 2020. Consumer confidence moved up to 102 from 97.5 better than expected. I am not sure which consumers were surveyed for that result, but we will leave it at that. The biggest laggards on the were IYT, XLF, XLV, and XLI. IYT is the most concerning closing below the 200-day MA. Transports struggled on the news from the Red Sea of a missile striking a Greek ship. The disruption continues in this key shipping lane. The dollar moved lower as it continued to struggle. Technically the charts show some divergence with the NASDAQ at new highs, the SP500 trading sideways, and the Dow trading lower. Leadership is narrow as only two of eleven sectors showed green at the close. Watching how it all unfolds and managing the risk accordingly.

The major indexes closed the day higher with semiconductors setting the upside tone. NVDA set the tone for the sector up 7% on the day. Leadership was narrow with energy and tech leading the day. The commodities were higher but that is a concern on the inflation front. The focus is on the PCE data due out Friday. Wednesday’s data is light as the markets will be left to their fear and greed. The NASDAQ closed up 0.6%, DIA was down 0.5%, and the SP500 was up 0.02%. The major indexes closed mixed on the day. The SOXX was up 1.6%. Small Caps (Russell 2000) were down 0.1%. The ten-year treasury yield was 4.54% up 8 bps for the day. Crude Oil (USO) was up 3%. (UGA) was up 1.4%. Natural gas (UNG) was up 1.4%. The dollar was down 0.1%. Plenty to deal with moving forward as we manage our money and emotions relative to the current environment.

Wednesday Outlook: Except for the NASDAQ the broad markets are lagging. The focus is clearly on the Fed and interest rates. Growth is still a big question mark except for AI technology. Semiconductors continue to be the big benefactor thanks to NVDA. The laggards expanded on Tuesday with three sectors down more than 1% on the day. XLF sold on higher interest rates for longer talks, watching how the downside unfolds. SLV spiked higher. The key is to follow the trends up or down. 1) Watching the dollar, does it bounce back from recent selling? 2) Interest rates, do they rise back to the previous highs? They took a big step on Tuesday. 3) Crude oil fell on supply data? How does that unfold? Modest bounce on Friday… continued higher on Tuesday. 4) Natural gas is up 40+% the last three weeks… down 5% Friday does that continue? Bounced Tuesday… 5) DBA was up the last five days to bounce off the lows. Jumped higher on Tuesday. 6) The answers are unfolding… we have to take what is offered up or down.

Headlines Worthy of Note:

The Fed continues to bang the drum of higher rates for longer in the media as the Presidents are out speaking. Minneapolis Fed president Kashkari stated he is not ruling out a rate hike to make the point more emphatic.

Global markets continue to see upside as seen in EFA and EEM. The IMF upgraded China’s GDP forecast as the country continues to see recovery from the elongated closure during the pandemic.

Hubspot shares jumped on talks of a potential Google deal. An all-stock offer supposedly at $33 billion for the company would have an impact on the sector, but would also offer Google yet another key piece of the marketing technology sector that they are missing.

Quote of the Day: “It is an ironic habit of human beings to run faster when we have lost our way.” — Rollo May.

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