Jim’s Notes – Powell’s Comments Spark Rally

Moving the Market – July 10th

The markets were higher on Wednesday as Powell’s comments to Congress stated the Fed would cut rates even if they were not at the 2% target on inflation. He focused on the second part of the Fed mandate, maximum employment. Thus, the rationale to cut rates prior to the election. The combined reasoning boosted the hope of a rate cut and stocks moved up following the testimony. Semiconductors led moving above the June highs. ON, SWKS, MU, MCHSP, and AMD all were up more than 3% for the day. The Dow added some strength pushing towards the May highs. The NASDAQ closed at new highs with a solid upside. The S&P 500 index was led by technology. The 10-year bond auction was the best since October 2023 adding some optimism to stocks. The next issue facing investors is CPI data out on Thursday. Expectations are for little to no change in the data. The wildcard will be energy and housing numbers. Crude rose along with gasoline prices and could negatively impact the inflation data in the short term. All said speculation remains supreme, news continues to drive, and markets continue in an uptrend. Stops in place and the focus remains on the trend. Manage your risk accordingly.

The major indexes closed higher on the day with SOXX leading the day. Eleven of the eleven sectors were higher on the day. The intraday activity shows a correlation to Powell’s comments along with Pelosi stating she would back whatever President Biden chose to do relative to the election. Wednesday the NASDAQ closed up 1.1%, DIA was up 1.1%, and the SP500 was up 1%. The SOXX was up 2.3%. Small Caps (Russell 2000) were up 1%. The ten-year treasury yield was 4.28% down 2 basis points and TLT was up 0.2% for the day. Crude Oil (USO) was up 0.8%. (UGA) was down 0.5%. Natural gas (UNG) was down 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.

Thursday Outlook: The markets are back to the previous pattern of leadership… technology leading the upside with consumer discretionary pitching in. The markets moved to new closing highs. The breadth remains challenged. Small caps were slightly higher along with midcaps. A positive day for stocks overall. What are we watching? 1) The dollar directional shift. 2) Interest rates at 4.28% and still showing volatility relative to the outlook. 3) Crude oil remains above $80… some testing in the last three days and a modest bounce. 4) Natural gas remains volatile breaking below the key support levels. 5) IGV testing lower closed on a doji candle… watching how it plays out. 6) CPI data out before the market opens.

The chart below shows the breadth issue for the SP500 sectors compared from the beginning of the current leg higher that started in April. The technology sector is the only one to outperform the index… Note the rise in XLY last week.

Headlines Worthy of Note:

Chapter 11 filings increased 70% in the first half of 2024. Total bankruptcy filings jumped from 217,000 in the first half of 2023 to more than 251,000 in the first half of 2024 according to Epiq and the American Bankruptcy Institute.

Inflation is rising despite the headlines stating it is cooling. Yes, the rate of inflation has fallen, but we are still seeing price increases month after month adding to the already increased prices. Inflation outrage from customers in shifting the consumer landscape. The consumer has inflation fatigue and it showing up in shopping and dining habits shifting.

Quote of the Day: “Education is a progressive discovery of our own ignorance.” — Will Durant.

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