Jim’s Notes – Dollar Jumps with Interest Rates

Moving the Market – May 29th

The markets were overall negative on Wednesday with interest rates higher along with the dollar. Another weak treasury auction pushed yields above 4.6% on the 10-year bond. What economic data there was wasn’t pretty. Dallas Fed Index worst since the great recession. Going through the data points is downright sobering relative to the real world. Retail sales in the numbers were -16.4 versus -10.4 the prior month… consumer is fading faster. The Fed Beige Book release on Wednesday summarized the economic picture, “overall outlooks grew somewhat more pessimistic amid reports of rising uncertainty and greater downside risks.” There it is… what many have been saying in black and white. The market decline in the last two days begs the question of whether it is the start of more selling or if the buyers are still willing to take on risk. The upside in commodities on Tuesday reversed on Wednesday. Gold tested support again and silver held near the highs. DBA was higher on wheat and coffee prices. All eleven sectors of the SP500 index were negative showing the breadth of the downside. Energy, banks, industrials, materials, and utilities all showed more downside moves. Transports continue to decline breaking support and accelerating below the 200-day MA. Technically the charts show some divergence with the NASDAQ near the highs, the SP500 trading sideways to down, and the Dow trading lower. Short trade opportunities were added the last two days as we watch how the short term unfolds. As we have stated many times… the facts don’t matter, until they do. Leadership is narrow with technology the remaining bright spot. How does this play out? The anticipation would be it is an election year and the buyers historically win, but that doesn’t preclude some downside action in the interim. CRM missed earnings after-hours… down 16%… it is a component of the S&P 500 index. As stated, tech is the last bright spot… if the sellers take control how far do we drop? Watching how it all unfolds and managing the risk accordingly.

The major indexes closed the day lower as the dollar and interest rates were higher prompting the selling. Energy set the pace on the downside along with small-cap stocks. Leadership was not a term used except on the downside. Commodities struggled with the higher dollar. The focus is on the PCE data due out Friday. Thursday’s data is light but the GDP 2nd iteration will be reviewed. The NASDAQ closed down o.5%, DIA was down 1%, and the SP500 was down 0.7%. The major indexes closed lower on the day. The SOXX was down 2%. Small Caps (Russell 2000) were down 1.5%. The ten-year treasury yield was 4.62% up 8 bps for the day. Crude Oil (USO) was down 1.4%. (UGA) was down 2.2%. Natural gas (UNG) was down 5.8%. The dollar was up 0.5%. Plenty to deal with moving forward as we manage our money and emotions relative to the current environment.

Thursday Outlook: With the negative data piling up, interest rates higher, the dollar higher, inflation higher, and interest in stocks waning, the outlook near term isn’t overly positive. CRM earnings will impact the S&P 500 and technology sector. Watch the mag 7 here and how they respond. QQQ will be in play as well relative to the downside. The VIX rose to 14.2 showing a jump in anxiety. The focus is clearly on the Fed and interest rates. Growth is still a big question mark overall. Looking for a catalyst in either direction, CRM may offer that to the downside at least on Thursday. The laggards expanded on Wednesday. The key is to follow the trends up or down. 1) Watching the dollar, does it bounce back from recent selling? Yes, big time on Wednesday. 2) Interest rates, do they rise back to the previous highs? They took a big step on Tuesday and Wednesday. 3) Crude oil fell on supply data? How does that unfold? Modest bounce on Friday… continued higher on Tuesday. Lower on Wednesday staying near the $78 bbl mark. 4) Natural gas is up 40+% the last three weeks… down 5% Friday does that continue? Bounced Tuesday… Sold Wednesday… short side entry offered. 5) DBA climbing higher on wheat and coffee… inflation. 6) The answers are unfolding… we have to take what is offered up or down.

Headlines Worthy of Note:

Salesforce shared fall 16% on first revenue miss since 2006. Watching how it impacts technology (XLK) and SPY.

Orange juice prices are going through the roof… commodities continue to rise… inflationary obviously… think Fed… think interest rates… think stock prices?

Record-smashing summer could cause havoc in the commodities ever more than they have already. Some say it will be the hottest year in history. Throw in the shipping issues in the Red Sea and shortage of containers and you have more pressure on commodity prices.

Quote of the Day: “What after all, is a halo? It’s only one more thing to keep clean.” — Christopher Fry.

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