Jim’s Notes – Markets Mixed

Moving the Market – May 7th

The markets ended mixed on Tuesday, with many still talking about rate cuts as treasury yields moved lower again. It was a very light news day with earnings as the key source of data and those were even mixed as they were split between beating and missing. Disney announced before the opening and tried to spin the results like AAPL but it didn’t work, the stock fell 9.5% in trading. AAPL was back in the headlines about making their own AI chips for data centers. TSLA dipped 4% on government inquiries about their self-driving vehicle. The Fed out speaking was also mixed as they pontificated the need to hike rates if inflation continues and the need to not hike rates if it is under control. Sounded very much like the President speaking. The leading sectors on the day were basic materials, consumer staples, and utilities. The defensive side of the markets. RIETs were higher as interest rates dipped. The 10-year bond fell to 4.42%. That is the lowest in four weeks. Consumer credit fell to $6.27 billion from $15 billion month-over-month. However, revolving credit, i.e. credit cards, rose $152 million… that is the smallest rise since the shutdown from Covid. Credit card debt slammed to a halt. Could be that credit card delinquencies are at the highest since 2011. Equally, charge-offs on credit cards have risen from 1% in 2021 to 6% in January 2024… I thought this was the greatest economy in history. Enough said, it was slow day for stocks overall as we see plenty of doji candles left on the charts showing the pause in the move higher. We watch patiently as this unfolds over the next few days. The consensus is a pause and then a continuation of the upside move.

The major indexes were mixed on the day as investors continued buying believing the Fed is receiving data that would allow them or encourage them to cut interest rates. We still believe it is a stimulus that will come from the Fed. The leadership came from the defensive sectors as growth took a pause. The upside move remains in play. Seven sectors closed in the green. The NASDAQ closed down 0.1%, DIA was up 0.1%, and the SP500 was up 0.1%. The major indexes closed mixed. The SOXX was down 0.8%. Small Caps (Russell 2000) were up 0.2%. The ten-year treasury yield was 4.42% down 6 bps for the day. Crude Oil (USO) was 0.2%. (UGA) was down 1.4%. Natural gas (UNG) was up 0.6%. The dollar was up 0.2%. We are focused on managing the risk in the current environment and letting it unfold.

Wednesday Outlook: Markets are poised for a pause in the action before what is likely to resume the upside following. Consumer credit was ugly and telling relative to the consumer. We are managing our risk accordingly. Short-term upside opportunities continue to arise along with some downside opportunities. Commodities remains of interest with DBA gapping higher on the day. The dollar did rise 0.2% on the day to stop the downside move of late. Rotation remains as the S&P 500 index breaks the current downtrend and renews the upside. XLK, XLY, XLU are the current leaders. The major shift in leadership from energy to technology over the two weeks is key.

Chart of Sectors: This chart starts at the bounce from the April 19th low and you can see the acceleration in technology to take the leadership role. XLU is benefitting from the renewed speculation on electricity demand relative to AI centers.

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

Headlines Worthy of Note:

Reddit shares were up 14% after reporting earnings.

Apple announces new iPad Pro with M4 chip and iPad Air Tablets.

Disney says streaming is nearly breakeven, but shares sink 10% on soft guidance.

Google’s antitrust lawsuit is hearing closing arguments and it isn’t looking great for Google. This will have an impact on the search sector of technology regardless of the decision by the judge. Watching how this impacts the stock as well.

Quote of the Day: “Only bad golfers are lucky. They’re the ones bouncing balls off trees, curbs, turtles and cars. Good golfers have bad luck. When you hit the ball straight, a funny bounce is bound to be unlucky. — Lee Trevino.

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