Hot, Hot Inflation
First 4,136 served as S&P 500 support, then 4,154 – stocks disregarded weak bond market posture, and half of the intraday progress in driving non-tech stocks lower, was lost. Yesterday was special in that the advance-decline line registered over -900 while the 500-strong index rose solidly.
The explanation is of course tech AI chase, and NVDA exuberant guidance based – tech market breadth deteriorated as well, and the stock market leadership became even narrower than it had been in recent weeks and months.
What‘s new, is the relief over the debt ceiling 2-year deal optimism – resolution in the making that still has to pass both chambers. Outshining inflation, tight lending, rising bankruptcies, deposits outflow and other signs of approaching recession such as no end in sight to declining LEIs. Those National Financial Conditions index the Chicago Fed publishes, would soon turn up, and see Treasury reversing position and withdrawing liquidity through replenishing its TGA at the Fed.
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Let‘s move right into the charts (all courtesy of www.stockcharts.com) – today‘s full scale article contains 4 of them.
S&P 500 and Nasdaq Outlook
4,154 has become support again, breaking which requires further swing in Fed tightening bets (as if 11% odds of two rate hikes till Jul weren‘t enough). Jun 25bp are priced in, yet the disconnect to expecting cuts in autumn, and between rising yields and tech being frantically bid up (AI stealing ever greater share of the appreciation), persist – slight improvement in the former, with even narrower leadership disregarding retail, banking, industrials and materials in the latter.
Needless to say, the times when tech was the sole outperformer while the rest lagged badly, which is true also about discretionaries, didn‘t end up well for the S&P 500.
Bears aren‘t going to have a field day today – 4,136 is in no way on the table. A little to no upset core PCE figure would result in rally continuation, and overcoming 4,177 with 4,188 – there will be attempts to shake off disappointments even if that means more hawkish Fed as a consequence. Higher targets require cooperation from non-tech, and that won‘t come today too easily.
Sell the news reaction to debt ceiling deal accompanied by dollar appreciation is on the table as money would flow away from the tech hiding place into inordinately beaten down long Treasuries (10-y yield is 3.83% already, and looking at rejection before getting much closer to 4%).
Also, the week preceding Memorial Day is usually a down one, but stock market gains next week (i.e. the week containing Memorial Day) happen more often than not.
That means if you‘re willing to jump in and out fast, you can take the upcoming intraday dip while benefiting from whatever upside next week brings – as a hedge to the medium-term bearish position.
Pause in declining bonds seems at hand, and truly strong stock market bullish spirits would require high betas kicking in – last Wednesday‘s feat though won‘t be replicated I‘m afraid. I‘m looking for a modestly bullish turn up only.
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All essays, research and information represent analyses and opinions of Monica Kingsley that are based on available and latest data. Despite careful research and best efforts, it may prove wrong and be subject to change with or without notice. Monica Kingsley does not guarantee the accuracy or thoroughness of the data or information reported. Her content serves educational purposes and should not be relied upon as advice or construed as providing recommendations of any kind. Futures, stocks and options are financial instruments not suitable for every investor. Please be advised that you invest at your own risk. Monica Kingsley is not a Registered Securities Advisor. By reading her writings, you agree that she will not be held responsible or liable for any decisions you make. Investing, trading and speculating in financial markets may involve high risk of loss. Monica Kingsley may have a short or long position in any securities, including those mentioned in her writings, and may make additional purchases and/or sales of those securities without notice.
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