How Long Can We Keep This Pace Up Wall St.?
We're now six-straight days of victory for the S&P 500, but investors are starting to look over their shoulders. Also, a big week of big data and earnings continues.
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It's been a long time since I rock and rolled
It's been a long time since I did the stroll
Ooh, let me get it back, let me get it back
Let me get it back, baby, where I come from
It's been a long time, been a long time
Been a long, lonely, lonely, lonely, lonely time
Yes, it has
- "Rock and Roll" Plant, Jones, Bonham, Page (Led Zeppelin) 1971
The Beat Goes On
The corporate earnings releases for the week began in earnest on Tuesday. The real meaty macro-economic releases for the week will start for the week later this morning at 08:15 when the ADP Employment Report for private sector job creation publishes data for April. The solid performance across U.S. financial markets continued and has reached a point where traders and investors are starting to look over their shoulders.
Maybe the investing public is simply preparing for what must be a coming bout of profit-taking. Right? The fact is that broader markets really are not that technically overbought, if at all. The markets had fallen into such a state of decay by early April, the current streak of victories, six-straight days for the S&P 500, has merely returned equity markets to a healthy, but still neutral footing.
The simplest of technical readings for momentum, the Relative Strength Index, now stands at 54.43 for the S&P 500 and 54.79 for the Nasdaq Composite. Taken at face value, in isolation, any reading for this indicator in between 30 and 70 is considered to be "neutral." The "RSI," or relative strength index, for the S&P 500 had bottomed at 21.35 on April 8, well into what technicians might see as technically oversold.
Yes, 54 and change is well above the midpoint of the indicator's range at 45, but that's a long way from looking technically overbought, though this reading is at its most robust level since mid to late February. The S&P 500 has not visited technically overbought territory, as measured by this one indicator since last July. The Nasdaq Composite grazed technically overbought territory back in December. It's where we are.
Markets
It wasn't just stocks. Sure, the S&P 500 gained 0.58% on Tuesday as the Nasdaq Composite gained 0.55%. That performance across the Nasdaq came despite a losing day for the semiconductors. The Philadelphia Semiconductor Index gave up 0.92% on Tuesday, led lower by NXP Semiconductor NXPI and On Semiconductor ON as those two names surrendered 6.94% and 2.95% respectively. It probably does need to be pointed out that the Dow Jones U.S. Semiconductor Index was lower for the day, but much less severely at -0.28%.
Treasury debt securities had another strong day. The U.S. Ten Year Note paid just 4.17% by day's end on Tuesday, as the U.S. Two Year Note paid 3.66%. That was down four basis points each. Yields have not rebounded overnight, despite that U.S. equity index futures have rattled around, mostly in negative territory through the zero dark hours of Wednesday morning.
Breadth
Market internals remained overwhelmingly positive on Tuesday as they largely have since the "sell America" trade reversed so sharply last Tuesday. Nine of the 11 S&P sector SPDR exchange-traded funds closed out the regular Tuesday session in the green led by the Financials XLF at +1.04% and followed by the Materials XLB at +0.83%. The banks were helped on Tuesday by a 2.41% run made by Wells Fargo WFC as that stock regained the $70 level for the first time since April 3rd after its board of directors announced a $40 billion stock repurchase program. This works out to a rough 17% of Wells Fargo's entire market cap.
One potential trouble spot that I did notice on Tuesday was that the defensive sectors came alive. Three of the four defensive sectors, Staples XLP, the REITs XLRE and the Utilities XLU finished in places three through five on the daily performance tables. This could be portfolio managers prepping for a bout of profit taking as we head into the meaty part of the week from both earnings and macroeconomic perspectives.
Winners beat losers by almost 2 to 1 at the NYSE and by more than 3 to 2 at the Nasdaq. Advancing volume took a commanding 79.3% share of composite Nasdaq-listed trade and a 60.3% share of composite. NYSE-listed activity. Aggregate trading volume expanded by an impressive 11.5% on day over day basis across NYSE-listings and an almost unbelievable 26.1% day over day across Nasdaq-listings.
One Troubling Thought...
While aggregate trading volume across the membership of the S&P 500 has been building on a day-over-day basis, the S&P 500 has not hit its 50-day simple moving average for volume since April 11. That's right. This whole rally has occurred on lower trading volume than experienced during the selloff that preceded it.
What does that mean? Simple. It means that there are portfolio managers that never jumped back in when the markets turned. Can't they read a chart? Last week's rally was obvious. Not my problem. These guys want to keep hiring friends' kids and nephews who don't know how to fight over money that's on them.
This is where the road possibly forks. Either these kids realize that they are behind the eight ball and chase the market, forcing the rally's continuation... or they are not coming. That means the rally could very well run out of road, at least for now.
Consumer Nosedive
On Tuesday morning, the Conference Board released their April survey on Consumer Confidence and the results were not pretty. The headline number hit the tape at 86, down from 93.9 in March and 100.1 in February. This was also below expectations, which were in the 88 range. That's now five-straight months of weakening confidence and confirms the unsettling results of the University of Michigan's April survey on Consumer Sentiment.
At 86, this is the weakest single monthly print for U.S. consumer confidence since May 2020 when much of the northeastern U.S.was in some state of economic lockdown. See in the "economics" section below that the entire buffet of macroeconomic data will be on display on Wednesday, from private sector job creation to GDP growth to personal income and spending as well as personal consumption expenditure inflation.
Going into all of this data, futures markets trading in Chicago are pricing in just an 8% probability for a quarter-point rate cut to be made at next week's FOMC policy meeting, but a 65% probability for a rate cut to be made at the June 18 meeting.
Trade News
On Tuesday:
President Trump issued a couple of proclamations on Tuesday stating that automakers already paying tariffs would not also be charged for other tariffs such as those on steel, aluminum and those imposed on our North American neighbors due to the import of fentanyl into the U.S. The Trump administration also modified tariffs on foreign made auto parts meant for U.S. in U.S.-made vehicles. These tariffs, effective May 3, and originally meant to be 25%, will now allow automakers to be reimbursed for those tariffs up to 3.75% of the value of the vehicle this year, dropping to 2.5% next year and being phased out after that.
Commerce Secretary Howard Lutnick appeared at CNBC and stated, "I have a deal done, done, done, done, but I have to wait for their prime minister and their parliament to give its approval, which I expect shortly." This first "done" deal on trade is believed to be with India. Both Japan and South Korea are thought to be close behind.
Treasury Secretary Scott Bessent appeared at a White House briefing on Tuesday. Bessent stated, "We're negotiating with a lot of different interests. Some European countries have put on an unfair digital service tax. Other countries, Germany and Poland, don't have that. we want to see that unfair tax on one of America's great industries removed."
The Treasury Secretary is clearly going to bat for the likes of Amazon AMZN, Alphabet GOOGL, Microsoft MSFT and Apple AAPL.
Economics (All Times Eastern)
07:00 - MBA 30 Year Mortgage Rate (Weekly): Last 6.9%.
07:00 - MBA Mortgage Applications (Weekly): Last -12.7% w/w.
08:15 - ADP Employment Report (Apr): Expecting 121K, Last 155K.
08:30 - GDP Growth Rate (Q1-adv): Expecting 0.4% q/q, Last 2.4% q/q SAAR.
08:30 - Employment Cost Index (Q1): Expecting 0.9% q/q, Last 0.9% q/q.
09:45 - Chicago PMI (Apr): Expecting 45.9, Last 47.6.
10:00 - Personal Income (Mar): Expecting 0.4% m/m, Last 0.8% m/m.
10:00 - Consumer Spending (Mar): Expecting 0.5% m/m, Last 0.4% m/m.
10:00 - PCE Price Index (Mar): Expecting 0.0% m/m, Last 0.3% m/m.
10:00 - Core PCE Price Index (Mar): Expecting 0.1% m/m, Last 0.4% m/m.
10:00 - PCE Price Index (Mar): Expecting 2.2% y/y, Last 2.5% y/y.
10:00 - Core PCE Price Index (Mar): Expecting 2.5% y/y, Last 2.8% y/y.
10:00 - Pending Home Sales (Mar): Expecting 0.3% m/m, Last 2.0% m/m.
10:30 - Oil Inventories (Weekly): Last +244K.
10:30 - Gasoline Stocks (Weekly): Last -4.476M.
The Fed (All Times Eastern)
Fed Blackout Period.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: CAT (4.35), HUM (10.07), SMG (3.93)
After the Close: EBAY (1.34), KLAC (8.07), META (5.20), MSFT (3.22), QCOM (2.81), HOOD (.37)
At the time of publication, Guilfoyle was long WFC equity.
