NYSE MAC Desk

Weekly Recap:

STRAIGHT FROM THE TRADING FLOOR
by Michael P. Reinking, CFA - Sr. Market Strategist
     Patricia Medina - Market Strategy Analyst
DOW 39,070 (+4), S&P 500 5,305 (+37), Russell 2000 2,070 (+21), NYSE FANG+ 10,572 (+158), ICE Brent Crude $82.14/barrel (+$0.78), Gold $2,336/oz (-$2), Bitcoin ~68.9k (+965)
Coming into this week US equity markets were trading around all-time highs, closing higher for four consecutive weeks. In last week’s Recap, we walked through the primary drivers of that rally which included a pullback in Treasury yields with signs of moderation in inflation and economic growth, a continued solid corporate earnings backdrop, persistent AI related optimism and a decline in overall volatility. As we’ve been highlighting recently the market has become highly sensitive to economic data (there is some foreshadowing here) and the trading activity is increasingly feeling more episodic.

With a lack of major economic releases early in the week major indices hovered around unchanged with a slight negative bias. Once again, the trading activity through Wednesday was quite subdued with notional tracking about 20% below the pre-May YTD average. Through Wednesday (and ultimately for the week) the only sector with meaningful gains was technology. Semiconductors were the primary driver of that strength after Analog Devices put up very solid results and the management team suggested that industry dynamics had shifted and suggested that “we are at the beginning of a cyclical recovery." AI optimism coming out for the Dell Technology Event and Microsoft’s Builders Conference and anticipation ahead of Nvidia earnings on Wednesday night were also contributing factors.

Once again Nvidia delivered a beat and raise quarter while announcing a 10 for 1 stock split. Data center revenues were up >400% on a y/y basis, highlighting the seemingly insatiable demand for their products. The stock reacted in kind trading sharply higher, since its earnings release the company has added >$200B of market-capitalization. To put that number in context the increase in the last two days of trading is larger than all but 35 companies in the S&P 500.

This helped US markets gap higher on Thursday morning but that began to fade almost immediately after the open. The weakness accelerated after S&P Global Flash PMIs came in ahead of expectations while the pricing components moved higher. This pushed Treasury yields up >5bps reversing pretty much reversing all of the post-CPI move to the downside. It was an outside reversal day in the S&P 500 which closed about 2% off the intraday high, ending the session down 0.75%, but the Nvidia impact masked the weakness beneath the surface. The breadth was terrible with ~9:1 downside day (decliner/advancer) in the index. The S&P 500 equal-weight, Dow Jones Industrials, S&P 400 Midcap and Russell 2k indices all ended down ~1.5%, testing their respective 50d moving averages.

After April data pointed to some moderation in economic growth, the PMI survey suggests there may be some reacceleration of activity in May. The increase in services which hit the highest level in a year was particularly surprising. Adding to the concern price components moved higher particularly input prices, which could impact margins going forward. Over the last year survey data has not been a particularly good indicator for economic growth so the reaction did seem to be a bit outsized. This goes back to the hypersensitivity to economic data that I was referring to earlier. Fed Waller alluded to this in a speech earlier this week pushing back against the notion that the Fed was being overly data-dependent (or overreacting to incoming data) pointing to a reasonably steady SEP and pretty consistent messaging. Basically, telling market participants to take a look in the mirror and that they weren’t the ones pricing in seven rate cuts earlier this year.
 I do think the outsized move yesterday was also a function of positioning and sentiment getting a little stretched again and liquidity conditions starting to dry up as we head into the long weekend. The geopolitical concerns have also been building in the background.

 As we often see following a range expansion day today was an inside day, where the intraday high/low are completely within the previous day’s range. Markets did bounce with the S&P 500 recouping all of yesterday’s losses essentially closing unchanged over the last two days and up a whopping 2pts for the week keeping the streak alive (I guess). The other indices I mentioned above did bounce off their 50d moving averages to end the day higher but ended the week down 1% - 2%. One other note the Dow Jones Transports continue to significantly underperform down 3% this week and over 5% YTD, not a great signal for those who believe Dow Theory has predictive power. 
Outside of tech we continued to get earnings from consumer related companies. For the most part the numbers in the sector looked ok though there were plenty of examples where the stocks took it on the chin anyway. The commentary from management teams related to the consumer remained cautious highlighting the cumulative impact of persistent inflation and higher interest rates which has weighed on discretionary spending particularly for large ticket items. As it ties back to the macro, a couple of the major retailers have now said that they would be cutting prices to drive traffic this should help goods/food inflation on the margin. Additionally, fast food retailers are now brining low-cost meals back to their menus. There have also been reports that auto inventories are building with incentives also making a comeback.

Energy was the worst performing sector this week down nearly 4% following the commodities lower. REITs were also down over 3.5% reversing last week’s outperformance with the move higher in yields. Strains in commercial real-estate coming back into the forefront as Barry Sternlicht’s Starwood REIT (SREIT) tightened redemption caps to 0.33% of NAV from 2% to stave off forced asset sales - Bloomberg.
Global Markets -Most global markets ended the week lower. 

China/Hong Kong indices underperformed reversing some of the recent strength with military drills being carried out in Taiwan not helping sentiment. There was some skepticism the recently announced steps to stabilize the property market will be large enough. Foreign Direct Investment into the country remained very weak. Tech stocks were some of the worst performing (KWEB -7.5% WTD). There are reports that the country will step up tariffs on imported autos which weighed on European autos and luxury stocks for fears of further action.

In emerging markets India outperformed helped by continued improvement in PMIs. Brazil continued its underperformance.
Commodities

  • Energy - prices were lower this week
  • Oil - ICE Brent continues to cling to its 200d ma though it broke below a couple of times this week. The events in Iran did not impact prices. OPEC+ has its meeting next weekend and is expected to extend production cuts. Gasoline prices also fell.
  • Natural gas - prices in the US finally pulled back this week but still remain up >25% since the start of the month. Prices in Europe resumed the uptrend which began in mid-Feb. ICE Dutch TTF is testing the 200d. This is still underperforming US prices by 10% for the month.
  • Metals -  earlier this week we highlighted trading activity suggested momentum was waning and a pullback was in order and that came in the back half of the week. Gold and silver both ended down >2%. 
  • Copper - Sold off over 5% this week. I can’t tell you how many articles and Podcasts I’ve seen/listened to over the last two weeks discussing the Copper super-cycle. We began highlighting the set up here in early March into the technical breakout ~$4, so this has come a long way. It has held the 20d ma ~4.75 throughout the week. I think this will need some more time to gather strength before making a run to new highs. Watch the 50d currently around 4.50. Daily and Weekly Charts below.
  • Agriculture commodities moved higher this week. There was absolutely no downside follow through in Wheat after last week’s downside reversal and is right back at the highs.
  • Bitcoin - ended the week higher helped in part by speculation/news related to the approval of a spot Ethereum ETF. Ethereum was up ~20% this week.  
Economic Data/Central Banks
The most impactful piece of economic data this week was the PMIs we discussed above. It is worth noting that manufacturing PMIs also improved in Japan, Europe and India suggesting there are some manufacturing green shoots emerging globally. Claims data held pretty steady this week at 215k for initial claims and 1.794ml  for continuing claims which have slowly ticked higher for five consecutive weeks. Durable goods orders today were a mixed bag beating estimates but there were large negative revisions.

There were also revisions in today’s U of Mich. sentiment survey increasing to 69.1 from 67.4 but more notable were revisions to inflation expectations with 1-year expectations revised lower to 3.3% from 3.5% and 5yr expectations ticking down to 3% from 3.1%.

This week’s FOMC minutes struck a hawkish tone, but this was in line with what we’ve heard from officials over the last couple weeks. Officials continue to suggest that more data is needed to give them confidence that a change in stance is necessary and the bar for additional tightening seems very high.  Some officials continue to highlight that rates will ultimately settle in at higher levels than what was seen in the previous decade. Yields moved higher this week particularly at the front end. The 2yr yield has now almost completely reversed the April move lower though longer-dated Treasuries are still about 20bps off the highs. Leaving the 2-10spread the most deeply inverted it has been since December at ~50bps. 
  • Investment grade spreads virtually unchanged
  • US high yield OAS widened by 2bps. Emerging markets outperformed tightening by 7bps
  • Corporate issuance was busy early in the week with energy, utilities and industrials active sectors.
The Technicals Still Matter
S&P 500
This was a consolidation week fitting with last week’s commentary. But it does come with an asterisk after the outside reversal day yesterday which is a warning shot. Today was an inside day. Yesterday’s lows which was also the April high we broke out from ~5,265 will be an important level to watch next week. Below that the 20d is ~5,210 and the 50d is 5,175. 

Last week
After reclaiming the 50d ma last Monday the index has not looked back hitting a new all-time high this week. The index has quickly rallied ~300pts. Some sideways action here would be pretty healthy. Holding above 5,200 in the upper third of that recent move would show a commitment to the strength. Watch the 20d/50d ma's for support into a pullback. The volatility backdrop suggests some grindy stair step trading could be in the cards.
Look Ahead
US equity markets will be closed on Monday and when markets reopen the T+1 Settlement Era begins. The highlights of the economic calendar includes consumer confidence, GDP revisions and PCE in the US. Global inflation data and China PMIs at the end of the week will also get some attention. Treasury auctions will come back into focus with ~$200B of 2/5/7yr notes coming to market. Tech and retail earnings will continue to come in throughout the week. Next Friday is the MSCI rebalance and month-end. And don't forget tonight Russell will release its preliminary additions and deletions for this year's Reconstitution. Enjoy the long weekend and some time with friends and family!
Calendar
  • Friday Night - Russell Prelim Index Announcement
  • Monday - U.S. Equity and Bond Markets Closed in Observance of Memorial Day, UK Closed
  • Economic data:
  • US: None
  • Global: China Industrial Profits, Germany Ifo Business Climate, Japan Leading Economic Index Final
  • Central Banks:
  • Auctions: EU Bond, France 12mo BTF
  • Energy: None
  • Earnings After-Market: DDD, AIRC, GNLN, GURE, SJT, SHPW, SCX, UPXI, XYF
  • Tuesday - T+1 Settlement Begins
  • Earnings Pre-Market: DAC, DSX, ESLT, GLNG, ICCM, ITRN, LITB, NNOX, TGAN, VAXX
  • Economic data:
  • U.S: S&P/Case-Shiller Home Price, House Price Index, CB Consumer Confidence, Dallas Fed Mfg Index
  • Global: Germany Wholesale Prices, Canada PPI
  • Central Banks
  • ECB 1 & 3yr inflation expectations
  • Speakers: Fed Mester/Kashkari
  • Auctions: $70BN 13wk/$70BN 26wk/$65BN 42d U.S T-Bills & $69BN 2yr/$70BN 5yr U.S Notes, Italy BTP short Term/Index-Linked, Germany 10yr Bund
  • Energy: None
  • Earnings After-Market: APPS, BOX, BTCM, CAVA, FFIE, GDEV, GNLN, GRIN, HEI, LOOP, OOMA, STAF, YY
  • Wednesday -
  • Earnings Pre-Market: AAP, AEO, ALLT, AMPG, ANF, CHWY, CLGN, CMCO, DAKT, DKS, MDWD, NAT, SPWR, SQNS
  • Economic data:
  • US: Weekly MBA Mortgage Apps, Richmond Fed Mfg/Services Index, Dallas Fed Services Index, Fed Beige Book
  • Global: Australia Westpac Leading Index, Japan Consumer Confidence, Germany CPI, GfK Consumer Confidence, Brazil Unemployment Rate
  • Central Banks
  • Speakers: Fed Williams
  • Auctions: $44BN  7yr U.S Notes & $28BN 2yr FRNs, UK 15-Year Index-Linked Treasury Gilt, Germany 15-Year Bund, Canada 30-Year Bond
  • Energy: API Inventory
  • Earnings After-Market: A, AI, CPRI, CRDO, CRM, DSGX, FNGR, GES, GURE, HPQ, ITI, MLEC, MVLA, NCNO, NTNX, OKTA, PATH, PSTG, RRGB, SBNY, SSYS, TATT, UHAL, WINT, WRAP
  • Thursday -
  • Earnings Pre-Market: BBW, BBY, BIRK, BURL, CAL, CANF, CATO, CBRL, DG, DLTH, DXLG, EVAX, FL, GHM, HRL, KSS, MOV, REE, RSVR, SPTN, THR
  • Economic data:
  • US: Weekly Jobless Claims, GDP 2nd Est, Goods Trade Balance Adv, Retail/Wholesale Inventories, PCE Prices 2nd Est, Pending Home Sales
  • Global: Spain Inflation, EU Unemployment Rate/Consumer Confidence Final/Industrial & Services Sentiment, Mexico Unemployment Rate
  • Central Banks
  • Federal Reserve Balance Sheet Update every Thursday (BTFP credit facility)
  • Speakers: Australia RBA Hunter, Fed Williams
  • Auctions: Japan 2-Year JGB, Canada 2yr Bond
  • Energy: DOE EIA Inventory
  • Earnings After-Market: ADSK, AMBA, ASAN, COO, COST, DELL, EGIO, ESTC, GPS, HCP, HPH, IBTA, JWN, LVRO, MDB, MRVL, NTAP, PD, PHR, PROC, S, SFES, ULTA, UONE, VEEV, ZS, ZUMZ
  • Friday -  
  • Earnings Pre-Market: FRO, GCO, HIBB, HURC, MLAB
  • Economic data:
  • US: Personal Income/Spending, PCE, Chicago PMI
  • Global: Japan Unemployment Rate/Tokyo PI/Industrial Production, China NBS Mfg/Non-Mfg PMI, EU Inflation flash, India/Canada GDP 
  • Central Banks:
  • Speakers: Fed Bostic
  • Auctions: Italy 5yr/10yr BTP
  • Energy: Rig count
  • MSCI Index Rebalance
  • Earnings After-Market: GMGI, SLNA
  • Weekend
  • OPEC+ Meeting
  • South Korea Exports/Imports, Italy Unemployment Rate, China Caixin Mfg PMI, Japan PMI Final

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