Jim’s Notes – PCE Creates Mixed Outlook

Moving the Market – June 1st – Weekend Update & Outlook

The markets sold early and bounced late in the week’s final trading day. The Personal Consumption Expenditures (PCE) report was in line with expectations but investors seemed to have a mixed response to the data. At first blush, there was some relief, but then selling took over until early afternoon followed by buyers stepping it pushing the indexes back towards even on the day. The data isn’t likely to sway the Fed one way or the other relative to hiking or lowering interest rates. The laggards led on Friday showing some rotation, but we will see how that unfolds in next week’s trading. There were some interesting moves in large caps with MSFT moving to the 50-day MA, AMZN moving below the 50-day MA, and the SOXX managing to hold the trendline after early selling. The taking heads want to call this a collapse in the technology stocks… the charts say otherwise. The downside was a test of the new highs at this point, nothing more. In fact, the upside trend held and the opportunities show some solid setups for next week. The transports bounced the last two days from selling as did the small caps. The Dow put in a nice bounce off the lows as well on Friday. The NASDAQ was down almost 2% intraday and managed to move back to even on the day… the buyers aren’t dead yet. Taking a look at the landscape of the markets we see the laggards bouncing off the recent lows, the leaders testing their respective run higher, and opportunities if some rotation comes to fruition. A look at the Q1 GDP reported on Thursday was lowered to 1.3% as expected, consumption fell to 2% from the previous 2.5%, core PCE was up 3.6%, corporate profits fell 1.7% versus the expected 3.9% growth… profits translate into earnings, right? None of that was pretty nor encouraging. The story behind the story of Q1 GDP is that government spending accounted for 34.4% of all spending. If you were to remove the spending for the Ukraine and Isreal wars, GDP would be negative. Thus, we are not experiencing ‘real growth’, and thus why inflation continues. Just look at the last week aluminum hit all-time highs. Orange Juice is surging. Beef prices are up again. Wheat hit a new high. Copper hit new highs prior along with coffee. The inflation issue isn’t over despite what the White House mumbles. There are problems with the economy and they aren’t going to be fixed anytime soon based on the current approach we are taking economically, and geopolitically, along with excess spending. All said, interesting week of trading and data. We look to next week as well follow the trend and take what the markets offer despite the data.

The major indexes closed the day mixed as the broad markets bounced off the lows of the day. Energy set the pace on the upside. The laggards led the upside while the leaders struggled to end the week. The focus of the day was digesting the PCE data relative to the GDP from Thursday… end result was mixed and stocks traded in conjunction with that theme Friday. The NASDAQ closed down 0.01%, DIA was up 1.6%, and the SP500 was up 0.8%. The major indexes closed mixed on the day. The SOXX was down 0.8%. Small Caps (Russell 2000) were up 0.8%. The ten-year treasury yield was 4.51% down 11 bps for the day. Crude Oil (USO) was down 0.9%. (UGA) was up 0.8%. Natural gas (UNG) was up 0.1%. The dollar was down 0.07%. Plenty to deal with moving forward as we manage our money and emotions relative to the current environment.

Monday Outlook: New week, new month, new data… how do stocks respond after the test lower and bounce on Friday? I would like to say the bounce higher continues, but we will have to see how things unfold. The same challenges lie ahead. We have not done one damn thing to change the course of the economy. Too much government spending… 34.4% of GDP is the government! Unwillingness to break inflation thus it sticks around. Liquidity remains and ongoing issue as the Fed builds money supply behind the scenes. Treasury auctions have been awful at best. The bottom line we have to watch the charts and how they respond in kind to the data. The VIX rose to 14.8 showing a jump in anxiety but then closed Friday at 12.9 on the late-day rally… indecision at its best. 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… does the Friday bounce continue? The key is to follow the trends up or down. 1) Watching the dollar, does it bounce back from recent selling? Yes, thus far. 2) Interest rates, do they rise back to the previous highs? They took a big step but fell on Friday. 3) Crude oil fell on supply data? How does that unfold? OPEC leaving production for now… watching. 4) Natural gas is up 40+% the last three weeks… down on supply data. $17 support UNG. 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:

Hurricanes make affordable homeowners insurance elusive. What’s behind the increases? Adding to the cost of living for housing impacts the inflation rates as well. Car insurance is equally seeing increases due to weather and electric cars.

OPEC and the Saudi Arabi will decide on Sunday about production cuts or maintaining the current levels. There decision will impact oil prices near term.

Anchor Brewing set to be resurrected by Chobani yogurt billionaire. The brewery was shuttered last year by Sapporo. Maybe San Francisco will rise along with the closed brewery.

Quote of the Day: “Middle age is when your age starts to show around your middle..” — Bob Hope.

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