It has been good to stand in for Dougie on the Daily Diary today. It was also nice to see the markets open the trading week with a rally and close near the highs of the day. Let's see if stocks can build on today, or if they give back the gains as we go deeper into the holiday-shortened week.  

Citigoup's head equity strategy states the House's version of the FY2026 budget could add approximately $600 billion to next year’s deficit, though tariff income might offset about $200 billion of that amount. He goes on to say the proposals could provide "a positive fiscal impulse, which net-net is good for the economy economic conditions and, most importantly, S&P 500 earnings." My view is this is all conjecture until the bill is signed off on and implemented, which is several months away. There will be plenty of horse trading going on until we reach that point. 

Citi's analyst also believes the market is fairly valued at 23 times earnings. That I do disagree with, as I see equities clearly overbought regardless of what eventually gets signed in D.C. 

Until next time, Happy Hunting!

Stocks are maintaining their big gains on the day as we head into the final stages of trading Tuesday. The major indexes are almost exactly where they were at my last post, and investors should be happy to close the start of a new trading week on a high note.

V.F. Corp. VFC is up 12% on the day as it was disclosed insiders added more than $2 million worth of new shares — a nice vote of confidence from management of this apparel concern. Maybe it's a showing of optimism that trade deals will be reached with the Asian countries that produce most of their goods as the company continues to move away from sourcing in China. Abercrombie & Fitch Co. ANF, another apparel maker with significant exposure to manufacturing in the region, is up 5% on the day. The company reports first-quarter results before the bell tomorrow.

The housing market continues to deteriorate. This trend now is hitting all ends of the market it appears. Pending luxury sales fell to their lowest April level since 2014 due to economic uncertainty, according to a Redfin report today. This could be a headwind to the likes of luxury homebuilders such as Toll Brothers, Inc. TOL. That said, the stock up over 3% today.

Equities are a bit higher since my last post with the Nasdaq now up around 2.4%. Solid days as well for the Dow, up nearly 650 points, and with the S&P 500 climbing 1.9%.  Investor sentiment is being boosted by positive trade developments between the U.S. and the European Union over the weekend. Whether this leads to an actual trade framework agreement in the weeks ahead is anybody's guess at this point.

Investors are also seeing strength also in small caps with the Russell 2000 rallying 2.25%. However, the high-beta biotech sector is badly lagging the overall market rally, although it is still in the green on the day. Commodities and energy sectors are some of the few in the red today as WTI crude is off 1.5% and gold has fallen nearly two percent on the day. The VIX is back under the 20 level.

On the consumer front, data from the Conference Board earlier today did show consumer confidence improving significantly (by 12.3 points to 98) in May after five straight months of decline. In addition, the box office had a record Memorial Day weekend haul led by movies like "Mission Impossible — The Final Reckoning" and "Thunderbolts."

The market has strengthened a tad since my last post with the Nasdaq now up around 2.2%, while the Dow is up by more than 600 points. This is a broad-based rally as the small-cap Russell 2000 is up 2% as well. Equities have now recovered all of their significant losses from Friday and then some.

I am not doing much with my portfolio today outside of rolling forward some of my covered call positions that are not looking like they will expire in the money at the June or July option expiration dates. This is because I am in full "Buy the dips, sell the rips" mode. 

I don't see today's sharp move up as anything more than a one-day rally. Equities are likely to swing in a back-and-forth mode until there is much more certainty around where tariff and trade policies will eventually land. And unfortunately, that seems some months away.

Speaking of trade, National Economic Council Director Kevin Hassett posted today that the Trump administration does not want to "harm" Apple AAPL. This follows a take from the POTUS late last week that even if Apple moved iPhone production completely to India, it still would face a tariff of at least 25% if manufacturing wasn't in the U.S. As previously stated, I believe any certainty around trade/tariffs is many months away.

Equities opened strongly in the first 90 minutes of the new holiday-shortened trading week with the Nasdaq leading the way with nearly a 2% gain early.  

United States Steel Corporation X follows up an approximate 20% gain late Friday, moving up by 2% in Tuesday's trading. The catalyst was the administration blessing the company's merger with Japan’s Nippon Steel. The agreement comes after pledge to keep jobs in the U.S. Nippon will also invest $14 billion to upgrade facilities, $11 billion by 2028. A nice win for blue collar cities in the Rust Belt.

"Unrealized losses" redux. The steep spike up in interest rates following the commencement of the most aggressive monetary policy by the Fed that started in March of 2022, triggered a huge rise in unrealized losses in banks' bond portfolio.  This helped sink three major regional banks in the first half of 2023. Japan does this event one better as "unrealized losses" on 40-year government bonds were north of $500 billion over the past six weeks as interest rates spiked before some relief today.

Some improvement on the manufacturing front as some tariffs got postponed.

Texas Manufacturing Business Index: -15.3 in May vs. -35.8 in April, the Dallas Fed said on Tuesday.

Production index: +0.9 vs. 5.1 prior.

Capacity utilization: -1.5 vs. -3.8 prior.

New orders: -8.7 vs. -20.0 in April.

Outlook index: -11.3 vs. -28.3 prior.

The pushing off of tariffs also helped consumer confidence rise 12.3 points this month to a reading of 98, in a Conference Board survey result that came out earlier today.

As signaled by pre-market futures, equities start the new trading week with a broad-based rally.  

Some M&A action of note: Salesforce, Inc. CRM announces the purchase of enterprise cloud software company Informatica INFA for just over $7 billion or $25 per share in cash. The combination has been rumored and in the works for some time.  Salesforce believes the acquisition will be accretive in its second year.  Wedbush chimes in that it likes the transaction as it will bolster Salesforce's AI capabilities by improving its strategy leveraging proprietary data and the combination should have substantial synergies.

In economic news, the S&P CoreLogic Case-Shiller Home Price Index for 20 cities fell 0.1% on a month over month in March. This was less than the +0.3% consensus and slowing from +0.4% in February.  As I noted in an earlier post, the Northeast is holding up, with New York City leading the gainers with price appreciation of 8% on a year-over-year basis. Tampa was the leading decliner, with a decrease of 2.2%.  Hard times for the previously scorching Sunshine State are likely to continue. Five of the 10 cities with highest home cancellation rates in April were in Florida.

The Home Front is nervous dept. Two thirds of U.S. consumers now expect higher unemployment over the next year.  This is the highest level reported since 2008.  Recently in the UofM Consumer Survey, inflation expectations jumped to 7.3%, the highest reading since 1981.  

With an hour or so to go before the open, pre-market futures are still pointing to a gain of roughly 1.5% at the market open. Whether those gains hold is anybody's guess, given the uncertain nature of the current market.  

Will India be No. 3? After recent trade agreement frameworks agreed to with the U.K. and China, Wedbush believes India might be next. They assert that India's technology workforce, high engineering talent, and supply chain infrastructure is a good thing for Apple AAPL, as it looks to shift some production out of China due to increasing tariffs and pressure from the administration. Wedbush maintains its "Outperform" rating and $270 a share price target on the tech giant from Cupertino. The stock has fallen just over 20% so far in 2025.  AAPL came into the year with a price to sales ratio of around 9.7, which has come down to just under 7.5.  It should be noted from 2010 until the pandemic, APPL always trading at under 5-times revenues.

Tesla, Inc. TSLA is trading up in pre-market a bit over 2%, despite reported sales were nearly cut in half on a year-over-year basis in Europe during April. In the first four months of 2025, sales are down some 40% from the same period a year ago. Chinese manufacturer BYD recently surpassed Tesla in pure electric vehicle sales in Europe for the first time.  In addition, over a third of auto sales in Europe are driven by hybrid EVs, a sector Tesla does not have offerings in.  

Goldman Sachs is out with a take that tariff price hikes won’t drive an inflation surge.  They cite several factors for that assessment. Among these are a weaker labor market and slower consumer spending. Goldman also believes the probability of Stagflation is low. I hope that scenario plays out. However, color me skeptical. On an anecdotal level, I just paid $30 for four 20X20 A/C filters via Amazon AMZN that I have been paying in the low $20s for years. It is going to be very interesting how tariffs will impact prices for myriad consumer items in the months ahead.

It is good to be sitting in on the Daily Diary for Doug Kass as we kick off a holiday-shortened trading week. 

Based on futures, we are going to start trading on a high note after the major indexes fell around 2.5% during last week. Premarket futures are pointing to a just over 1.5% gain to start the trading day Tuesday. 

A good portion of those losses were triggered on Friday after the POTUS stated that tariffs on European goods would be hiked to 50% starting on June 1. Premarket futures are now much higher after President Trump and the head of the EU stated they had a "good call" and those new tariffs would be moved back to July 9 to allow for time for additional trade talks. Confused? You won’t be after the next episode of Soap.

Speaking of Europe, it looks like all restrictions on long-range strikes using the weapons provided to Ukraine by the collective West have been lifted. Any potential settlement to end the bloodiest conflict in Europe since WWII seems further away by the day. 

On a brighter note, the yield on the 10-Year Treasury is down five basis points to 4.46%. Recently, I highlighted this yield as the most important number for the market.  

The residential and commercial real estate sectors could use any help they can get at the moment. There has been a lot of chatter on the myriad real estate podcasts I listen to calling the multi-family properties the "new" or "next" subprime. This will tend to happen when the delinquency rate for CMBS on multi-family properties goes from under 1.5% to over 6.5% in 12 months. 

On the residential side, home/condo inventories continue to pile up in previous hot spots for intrastate migration such as Texas and Florida. This has led to an increase in home asking price reductions. Ironically, real estate prices and the market are holding up best in the Northeast due to lack of inventory. This is the exact opposite of what happened during Covid and the years after the pandemic.