Trump in Riyadh, Recession in Remission, Rally in the Market
Also, let's chart the S&P, look forward to the CPI and check on Coinbase.
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Just one day after striking a deal with Hamas to secure the release of Edan Alexander, who spent 18 months in captivity and was the last remaining American hostage in Gaza, Pres. Trump is on the ground in the Middle East. The trip also comes a week after the U.S. halted its bombing campaign against Houthi militants in Yemen after the Department of Defense had announced that more than 1,000 targets had been hit in 51 days. Those Houthi militants have supposedly "capitulated" and in the president's own words... "will not be blowing up ships anymore."
This trip is diplomatic, but really much more economic in purpose than were these other events as the U.S. continues to focus on the region. Pres. Trump is in Riyadh, Saudi Arabia this morning, after being welcomed on the tarmac by Crown Prince Mohammed bin Salman. The president is accompanied by Treasury Sec. Scott Bessent, who over the weekend proved his worth to the administration in securing a 90-day pause in the trade war between Washington and Beijing that left 30% tariffs on Chinese goods exported to the U.S. and 10% tariffs on U.S. goods exported to China, while tearing down other, non-tariff related trade barriers.
The president will attend a planned luncheon with the Crown Prince that will also be attended by Blackstone BX CEO Stephen Schwarzman, BlackRock BLK CEO Larry Fink, Citigroup C CEO Jane Fraser, Nvidia NVDA CEO Jensen Huang, Tesla TSLA CEO Elon Musk, Palantir Technologies PLTR CEO Alex Karp, IBM IBM CEO Arvind Krishna, Boeing BA CEO Kelly Ortberg, Amazon AMZN CEO Andy Jassy, Alphabet GOOGL CEO Ruth Porat, Uber Technologies UBER CEO Dara Khosrowshahi and Bridgewater founder Ray Dalio.
The Why
The president is in Riyadh in hope of securing as much as $1 trillion or more in U.S. investment commitments from the Kingdom of Saudi Arabia and Saudi businesses. This would be an increase from the $600 billion over four years already committed by the Saudis just after the president's inauguration in January. For the Saudi Royal Family, the goals are similar, in some ways, to what the U.S. president is after: The Crown Prince is trying to modernize and diversify the Saudi economy so as to not be so dependent upon the oil trade. The Saudi leader is seeking investment in his "Vision 2030" project that is estimated to likely cost close to $2 trillion and would include the development of a futuristic city to be known as Neom.
The stop in Riyadh kicks off a three-day tour that will include visits to both Qatar and the United Arab Emirates over that period. Expectations for the trip at a minimum, are that the Saudis will announce more than $100 billion in U.S. arms purchases as the U.S. and Saudis possibly revive a scaled down defense pact. The president will also meet with Pres. Mohammed bin Zayed Al Nahyan to discuss investment opportunities in artificial intelligence, and high-end semiconductor design. Remember, less than two months ago, the UAE announced a $1.4 trillion U.S. investment in U.S. tech over the next ten years. This is where it is believed that the president may lift Biden-era restrictions on the export of advanced technology to that nation.
Chips Ahoy
The fact that the Trump administration is considering the sale of AI-capable semiconductor chips to Middle Eastern powers should not shock. In addition to Emirati generative AI company G42, the Saudi's also have an interest here, and will represent that nation's brand-new AI firm, Humain. White House AI czar David Sacks has been working on an agreement with G42 that could also provide the framework for a deal with Humain.
It is believed that G42 is interested in purchasing at least 500,000 of these chips by 2026. I do not have a number for Humain. Obviously, the two key U.S. beneficiaries of any kind of AI-trade deal involving U.S. chip designers will immediately boost high-end, high-margin sales for both Nvidia and Advanced Micro Devices AMD.
Marketplace
What was that? Monday was a rally for the ages, and so very technically predictable. One just has to love when a path forward is so well lit, and market behavior has been as easy to read as this one has been for traders and investors for almost two months now. It's usually at times like this that I jinx myself, and I hope I don't, but literally every single technical signal sent by this market since before the president's "Liberation Day" has worked like a charm.
If you read this column, there's a very good chance that your portfolio has either regained or is close to regaining whatever level it was at in mid- to late February. We've had a tremendous run. Let's try not to get cocky and remain as focused as we were at the bottom. Once we think this game is easy, it's usually then that this game makes an effort to humble us. At least that's been my experience.
Monday was just incredible. The Nasdaq Composite gained 4.35% for the session as the S&P 500 gained 3.26%. The Philadelphia Semiconductor Index and the Dow Transports looked at those numbers and said, "hold my beer." The semiconductors were up a stunning 7.04%, with the transports just behind at 6.98%. The transports were led by maritime transport, the truckers and the rails. That screams "no recession," gang. In other "no recession" news, McDonald's MCD announced that it's looking to hire 375,000 new employees. This is not a typo. Small- to mid-cap indexes all gained from 3.42% to 3.67% for the session as well. The only real selloff was seen in the bond market where funds were pulled to be redeployed into equities.
Breadth
Ten of the 11 S&P sector SPDR ETFs closed out the day in the green. Defensive sectors were the day's laggards, as the Utilities XLU was the only fund among the 11 to post a losing session. Discretionaries XLY and Technology XLK both gained close to 5%, with the Industrials XLI gaining more than 3%.
Winners beat losers on Monday at the NYSE by a 13-to-4 margin and at the Nasdaq by a rough 3 to 1. Advancing volume took an 82.5% share of composite Nasdaq-listed trade and a 77.9% share of NYSE-listed trade. Incredibly, as portfolio managers were forced to get more invested, aggregate trading volume was up 29.5% on a day-over-day basis across NYSE-listings and 21.3% on a day-over-day basis across Nasdaq-listings. Aggregate trade across the membership of the S&P 500 ran 11% above the 50-day simple moving trading volume average for that index. Monday was also the busiest session for the U.S. stock market since April 10th.
What This Means in Charts
Readers will see in this intraday chart of the S&P 500 that the index closed at the top of the chart. Despite overnight weakness in US equity index futures markets, this is a positive sign. We now look for a second aggressive rally at some point this week.
Readers will also see in this daily chart of the S&P 500 that the index took back its 200-day simple moving average on elevated trading volume. This illustrates the forced allocation that I mentioned above.
Relative strength is strong, but as mentioned yesterday, the S&P 500 is still not technically overbought. Also mentioned yesterday, the daily Moving Average Convergence Divergence is now extremely bullish. Was Monday a new "Day One," not of a reversal of trend, as the trend has been bullish for quite some time, but of a continuance or renewal of trend?
Very likely. Remember, we need a pause in between a Day One and a Confirmation Day, which is why the unfilled gap created on Monday could be crucial. Should there be some weakness, especially after this morning's consumer price index data, that gap could act as a magnet and pull the index back towards a test of that 200-day simple moving average from above. This will also test portfolio manager resolve and act as our guide moving into the later part of this week. All I can say, gang, is "rock and roll." We've been taking names and kicking tail. Head on a swivel. Stay alert. Now, let's move out and get some.
Don't Be Startled...
... If the April CPI data appears to be a bit hot to the touch. Play the game. Play the environment, but do not be startled. There will certainly be an algorithmic reaction at 08:30 ET this morning.
Changes: Coinbase to S&P
Cryptocurrency exchange Coinbase Global COIN will be added to the S&P 500 on May 19, Coinbase will replace Discover Financial DFS, which has agreed to be acquired by Capital One Financial COF. That deal is expected to be completed shortly.
Economics (All Times Eastern)
06:00 - NFIB Small Biz Optimism (Apr): Expecting 94.5, Last 97.4.
08:30 - CPI (Apr): Expecting 0.3% m/m, Last -0.1% m/m.
08:30 - Core CPI (Apr): Expecting 0.3% m/m, Last 0.1% m/m.
08:30 - CPI (Apr): Expecting 2.4% y/y, Last 2.4% y/y.
08:30 - Core CPI (Apr): Expecting 2.8% y/y, Last 2.8% y/y.
08:55 - Redbook (Weekly): Last 6.9% y/y.
4:30 - API Oil Inventories (Weekly): Last -4.49M.
The Fed (All Times Eastern)
No public appearances scheduled
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: CYBR (.79)
After the Close: UAA (-.08)
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At the time of publication, Guilfoyle was long NVDA, AMD, PLTR equity.
