Jim’s Notes – Interesting reaction to data

Moving the Market – June 12th

The markets gapped higher at the open following better news from the CPI data and held it until the FOMC results at 2 pm. Powell gave some clarity to the Fed’s position but didn’t give a timeline for any rate cuts. That created some modest selling into the close, but more importantly, left some doubt and uncertainty in the markets. This has been our fear about the FOMC meeting, knowing full well the pressure is on the Fed to cut rates, everyone knew they wouldn’t cut at this meeting… however, they wanted an idea of when the cuts would happen. Mr. Powell didn’t give a timeline, he gave more of the same, things are better but we aren’t there yet. It is like when we were kids on a ‘road trip’, are we there yet? Almost! The end result… more speculation on when and how far the Fed will cut rates. This takes us to the PPI data which was hotter last month than CPI. It could make for interesting headlines depending on how much logistics issues impact have been priced into goods. Additional food for thought is the DOE stated on Tuesday they expected higher demand for crude oil in the second half of 2024. Thus, energy prices would rise on demand. That was a key data point for cooling the CPI cooling last month. Just thought I would add some fuel to the speculation fire. The bottom line from the CPI data is the top line numbers show cooling, but the impact of inflation remains in the economic data. More important inflation is still growing at 3+ percent year over year. This in turn is causing many issues relative to minimum wage as well as salaries across the country. Wage inflation hasn’t even been discussed. Maybe because real average weekly earnings over the last 3+ years are down 3.9% relative to inflation equating to a drop in purchasing power for most households. The topline number may have cooled by 0.1% but the real impact of inflation is hurting the consumer and in turn the economic picture. Stocks bounced but they don’t reflect the real picture of what is happening overall in the US economy. All said we look to the follow up and follow through from investors. They got what they wanted for the most part… now what do they do with the data? Stops are in place as we manage the risk moving forward.

The major indexes closed the day higher as technology led the move. The volume was above average and all three indices closed in positive territory. The activity gapped higher with some volatility in the afternoon following the FOMC announcement. Wednesday the NASDAQ closed up 1.5%, DIA was down 0.3%, and the SP500 was up 0.2%. The major indexes closed higher on the day. The SOXX was down 0.07%. Small Caps (Russell 2000) were up 1.5%. The ten-year treasury yield was 4.29% down 11 bps for the day. Crude Oil (USO) was up 0.6%. (UGA) was down 0.8%. Natural gas (UNG) was down 3.2%. The dollar was down 0.4%. Plenty to deal with moving forward as we manage our money and emotions relative to the current environment.

Thursday Outlook: the focus will be on PPI will it show cooler as the CPI? If so, things should respond positively. Initial jobless claims will be out without much change expected. Needless to say, plenty of economic data to add to the FOMC and CPI news. The clarity hoped for didn’t materialize on Wednesday as it brought different speculation into play. The dollar tanked 0.9% in response to CPI but closed down 0.4% after the FOMC. Speculation plain and simple. The dollar bounced from the low impacting commodities equally. We closed at new highs… do we continue higher or does speculation weigh on the markets? Following the trends… 1) Watching the dollar as it relates to Wednesday’s news. 2) Interest rates moved to 4.29% on Wednesday… Watching the response on Thursday. 3) Crude oil bounced on Monday by 3.3%. Held the move thus far. 4) Natural gas remains volatile gaining 6.6% on Tuesday and falling 3.6% on Wednesday. 5) DBA is showing some volatility as well in the consolidation pattern. Higher on Wednesday. 6) The answers are unfolding… we have to take what is offered up or down stay out of the headlines and focus on what we know and believe… the trends will take care of themselves.

Headlines Worthy of Note:

Federal Reserve holds interest rates steady, lower forecast to 1 rate cut in 2024. If you want more details on the FOMC meeting this piece does a good job of laying out the numbers.

Big oil warned by the IEA that peak crude is on the horizon. The estimate from the IEA is that oil will gradually slow before reaching a peak of 106 million barrels per day in 2030. If this is true oil companies will be at risk relative to their exposure… thus, the current diversification by many of the major oil companies.

Broadcom boosts revenue from AI chips, unveils stock split. After hours solid earnings data from another chip maker and they were up 8% on the news. See how this impacts the stock and the SOXX in Thursday’s trading.

Decision day for TSLA and Elon Musk. The shareholders will vote today on paying Elon Musk $56 billion. The fallout will be significant if it doesn’t get approval.

Quote of the Day: “A psychiatrist asks a lot of expensive questions your wife asks for nothing.” — Joey Adams.

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