- "The Bivouac of the Dead" (excerpt) Theodore O'Hara (1850)
It's OK to celebrate the start of summer and enjoy your day off at the beach or in front of a grill. It's also OK to celebrate your liberty and how lucky you and I have been. Others have sacrificed where we have not. For we are the inheritors of something wonderful and something earned. By someone else.
Forget not about that kid who expired in some awful way, in some awful place, way too soon so that this experiment in government by and of the people might be preserved. Forget not. I only ask that you go out of your way and find one name, if you do not already have a personal connection to the fallen, and pray for the repose of the soul of someone who did that for you, who paid your fare. While we never, ever say "Happy" Memorial Day, it is OK to enjoy the weekend. We are one. We are.... Always Faithful.
The Race Is On
This Tuesday seems to be the date. Word is that House Speaker Kevin McCarthy and President Biden are coming closer to an agreement on federal spending and increasing the federal debt limit. Early on Thursday, Representative Patrick McHenry of North Carolina, who is one of the Republican negotiators, said there were "serious issues" that could "take some time." The markets wobbled.
Then happier, possibly handcrafted words were spread from both sides of the aisle. President Biden said there have been "several productive conversations" and that the two sides "continue to meet." Speaker McCarthy was optimistic, but cautious: "We do not have an agreement yet. We knew this would not be easy. It's hard, but we're working." McCarthy added, "We're going to work until we get this done."
Word is that both sides are working toward a bill that could pass in bipartisan fashion and will likely include at least a two-year federal spending cap in the US House by Tuesday. After that, the US Senate takes up the bill and, if passed, it then moves on to the president to be signed into law. June 1 is next Thursday, now less than a week away. That's not necessarily a deadline, but it is the date Treasury Secretary Janet Yellen has stated is the soonest date that the federal government would run out of enough cash and flexibility to satisfy all its obligations.
The Treasury Department should be able to avoid outright sovereign default for a week or two longer by focusing on the service of principal and interest on this debt and shutting down other payments for now, but that is not an answer.
Huge Macroeconomic Day Ahead
On Thursday, the Bureau of Economic Analysis revised first-quarter GDP up to growth of 1.3% (quarter over quarter, seasonally adjusted annual rate) from 1.1% while also revising Q1 Core Personal Consumption Expenditures (PCE) prices to growth of 5% year over year from 4.9% and the Q1 GDP Price Index from growth of 4% year over year to 4.2%. In short, in the BEA's first revision (of two) for the first quarter, somewhat anemic economic growth was actually less paltry than first thought, while already hotter-than-seen in Q4 year-over-year consumer inflation was actually a touch warmer than previously thought.
What does this do to the Fed? Where does this lead monetary policy? Likely, it allows the hawks to flex their thoughts a little bit while putting the doves on the defensive. It moved the probability as priced through futures markets trading in Chicago for the Federal Open Market Committee's terminal fed funds rate out an extra 25 basis points is all. This morning, I see a 59% probability for no change being made to the target range for the fed funds rate on June 14. At one point on Thursday, I saw these markets pricing in a 52% likelihood for a 25-basis-point rate hike on that date. This morning, that rate hike has been pushed out to July 26, where there is now a 65% probability for a rate hike of at least 25 basis points priced in.
According to this market, the FOMC would then hold the fed funds rate at 5.25% to 5.5% for one meeting (through Jackson Hole) and then start to cut rates on Nov. 1. The projected year-end fed funds rate is now up to 4.75% to 5%. The 18-month projected FFR is now up to 3.5% to 3.75%. This makes today's data all the more important.
Here on Friday, the same Bureau of Economic Analysis will release its April data for Personal Income and Personal Spending, as well as PCE and Core PCE prices (Thursday was the quarterly print, this is the monthly number). In addition, the Census Bureau will also publish its numbers for April Durable Goods Orders. This print is quite important, as a month-over-month contraction is expected across the board. This report is released across several metrics -- headline, ex-transportation, ex-defense and Core Capital Goods (ex-air, non-defense).
It's that last one that matters most as this excludes the most expensive items and military spending, leaving only what is considered by most economists to be a proxy for business spending. The Atlanta Fed is expected to revise its real-time Q2 GDPNow model later this morning. The model currently shows the second quarter running a bit hotter (2.9% q/q, SAAR) than many expected.
US equity markets either had a very nice day or they did not on Thursday as the entire tech space ran hot in response to the run made by Nvidia (NVDA) and all things perceived as being AI-related after Nvidia had posted blowout guidance on Wednesday evening. This outweighed broader market concerns, at least on the surface.
At the index level, the Nasdaq 100 ran 2.46% as the Nasdaq Composite popped for 1.71% and the S&P 500 gained 0.88%. This was all supported by a Tech sector SPDR ETF (XLK) that ran 3.84% for the session. Within that sector, the Philadelphia Semiconductor Index screamed an incredible 6.81% higher as the Dow Jones US Software Index "lagged," gaining a mere 3.15%.
However, the market from a broader perspective was anything but euphoric-looking. The blue chips and small-caps both experienced simultaneous contractions as the Dow Jones Industrial Average and Russell 2000 sat this rally out. Indeed, readers will see that the iShares Russell 2000 ETF (IWM) on Thursday surrendered both its 50-day simple moving average (SMA) and 21-day exponential moving average (EMA), leaving the fund exposed to a potentially larger sell-off.
Readers will note that on just about every occasion of late when this fund has lost the 21-day line that the event was followed by several "down" days as the swing crowd exits the trade.
For the Thursday session, the Tech sector SPDR was but one of three (of 11) to shade green for the day, with no other sector SPDR gaining more than 0.33%. Seven of the 11 traded lower on Thursday, with Energy (XLE) leading the way (-1.78%), while one fund, Communication Services (XLC) , closed unchanged. While Internet-based stocks did well on Thursday, within that sector those gains were offset by weakness in both entertainment and traditional telecom stocks.
The truth is that the big picture on Thursday was quite sloppy. Losers beat winners by almost 2 to 1 at the New York Stock Exchange and by more than 2 to 1 at the Nasdaq. Advancing volume took just a 32.1% share of composite NYSE-listed trade and -- this surprised me -- advancing volume took just a 44.3% share of Nasdaq-listed trade on Thursday despite the Nasdaq being the exchange where most of those tech stocks that ran wild for the day are domiciled. Trading volume, however, did pop much higher.
Aggregate trading volume increased by 10.9% over Wednesday for NYSE listings while increasing 13.8% day over day for Nasdaq listings. In addition, trading volume across the constituency of the S&P 500 actually hit the 50-day trading volume SMA for that index for the first time since May 4. Incredibly, though coming close, aggregate trading volume across the constituency of the Nasdaq Composite has not hit its 50-day trading volume SMA since May 3.
What does that say to me? It means simply that portfolio managers were for the most part more interested in thinning out their long exposure on what was perceived by many as an "up" day than were looking to put money to work in this environment. Furthermore, those portfolio managers who were maintaining or growing net long positions were likely narrowing that exposure.
No Soup for You
Interestingly, AeroVironment (AVAV) has been eliminated from the US Army's competition to provide the Future Tactical Uncrewed Aircraft System (FTUAS) to replace its Shadow UAS fleet. AeroVironment had been an early winner in the provision of military-grade drone aircraft as the Army moved toward improving its current stock and as Russian forces invaded Ukraine.
The US Army needs its next-generation unmanned drone aircraft to be vertical take-off capable, with improved maneuverability, and must be operable while on the move while emitting a reduced transportation and logistics footprint and operate more silently than today's drones. The Army has decided to move on with the development of this program with Griffon Aerospace (private), Northrop Grumman (NOC) , Sierra Nevada (private) and Textron Systems (TXT) .
Nice Job, Chris Versace!
You kids see Marvell Technology (MRVL) ? Our pal, Chris Versace, has held onto this name for the Action Alerts PLUS portfolio since early March and has maintained its highest rating. Marvell was up 7.59% on Thursday with tech on Nvidia news. Then, the semiconductor provider reported some earnings and guidance of its own on Thursday evening. Earnings beat consensus and the guidance was strong. MRVL is up another 16.7% overnight.
Why? Try this quote on for size. On the call, CEO Matt Murphy states flatly: "We expect Marvell's overall AI revenue to at least double in fiscal 2024."
I had some nice winners this week, so no complaints, but I was in this name twice since Chris' entry and got out when I narrowed my chip holdings to Nvidia and Advanced Micro Devices AMD ahead of my recession that still has not happened. Not Chris, though. He kept the faith on this one. The AAP crowd now reaps the reward.
Economics (All Times Eastern)
08:30 - Durable Goods Orders (Apr): Expecting -1.0% m/m, Last 3.2% m/m.
08:30 - ex-Transportation (Apr): Expecting -0.1% m/m, Last 0.3% m/m.
08:30 - ex-Defense (Apr): Expecting -1.5% m/m, Last 3.5% m/m.
08:30 - Core Capital Goods (Apr): Expecting -0.5% m/m, Last -0.4% m/m.
08:30 - Personal Income (Apr): Expecting 0.4% m/m, Last 0.3% m/m.
08:30 - Consumer Spending (Apr): Expecting 0.4% m/m, Last 0.0% m/m.
08:30 - PCE Price Index (Apr): Expecting 4.1% y/y, Last 4.2% y/y.
08:30 - Core PCE Price Index (Apr): Expecting 4.6% y/y, Last 4.6% y/y.
08:30 - Wholesale Inventories (Apr-adv): Expecting 0.0% m/m, Last 0.0% m/m.
10:00 - U of M Consumer Sentiment (May-rev): Flashed 57.7.
13:00 - Baker Hughes Total Rig Count (Weekly): Last 720.
13:00 - Baker Hughes Oil Rig Count (Weekly): Last 575.
The Fed (All Times Eastern)
No public appearances scheduled.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: (BIG) (-1.57)