Party on? Risk on!
U.S. equity markets did their best to break out of a trading range that is now several months old on Wednesday. Are they there yet? No. Are stocks knocking on that door? Certainly.
There was optimism regarding the debt ceiling and instead of focusing on the potential for a U.S. sovereign default, fuel was provided for heat-seeking (keyword-reading) algorithms. That fuel was plentiful, centered on avoiding such a default -- and came from opposite directions.
House Speaker Kevin McCarthy of California got the ball rolling early during an appearance at CNBC. McCarthy said, "I think at the end of the day we do not have a debt default." McCarthy then specified, "The only thing I'm confident about is now we have a structure to find a way to come to a conclusion." The algos liked that one. Then the Speaker added, "The timeline is very tight. But we're going to make sure we're in the room and get this done." Kapow!
President Biden spoke from the White House a short time later, just before leaving for the G-7 meetings in Japan. The president offered up the kind of bland pep-type speech that presidents often do. "I'm confident that we'll get the agreement on the budget and that America will not default." The president suddenly got more serious, "We're going to come together because there is no alternative. Every leader in the room understands the consequences of failure." Bang, Zoom!
The vibes of positivity kept on coming.
House Minority Leader Hakeem Jeffries of New York also appeared on CNBC, and said, "It was a very positive meeting yesterday. It was calm. It was candid in terms of discussion and I'm optimistic common ground will be found in the next week or two."
Additionally, the CEOs of some of the nation's largest banks were in D.C. in order to meet with Senate Majority Leader Chuck Schumer of New York on Wednesday and Treasury Secretary Janet Yellen on Thursday. JPMorgan Chase ( JPM) CEO Jamie Dimon stopped long enough to tell reporters: "The U.S. should not and probably will not default." More food for the keyword readers.
There's More...
As if all of that talk around the debt ceiling and avoiding a U.S. default were not enough, ahead of Wednesday's opening bell, Western Alliance Bancorp ( WAL) reported that the bank had seen more than $2B in new deposits since the end of the first quarter. This put those high-speed, keyword eaters into high gear much to the benefit of financials quite broadly and regional banks more specifically.
As the Financials Sector SPDR ETF ( XLF) ran 2.01% for the day, the KBW Bank Index was up 5.09% and the KBW Regional Banking Index led the way, up 5.7%. Individually, PacWest Bancorp ( PACW) soared 21.66% as Zions Bancorp ( ZION) popped 12.08% and Western Alliance gained 10.19%.
Happy! Happy!
Marketplace
Treasuries sold off moderately. Again. Capital is flowing back into the U.S. dollar. The "dixie" or U.S. Dollar Index moved back above 103 on Wednesday after having traded below 102 as recently as this past Friday. This has put the kibosh on much of the commodity complex. Not crude though.
Higher yields should get in the way of rising equity prices. The rising dollar should also slow inflows into U.S. equities, outside of smaller caps. Not so. Oh, the smaller caps did indeed roar, but in no way were they alone.
While the Russell 2000 and its somewhat similar competitor, the S&P SmallCap 600, were making runs of 2.21% and 2.37%, respectively, the S&P MidCap 400 gained a cool 1.73%.
Among the major indexes, the S&P 500 gained 1.19% on Wednesday as the Nasdaq Composite moved 1.28% higher. It should be noted that the Nasdaq 100 gained 1.22%, supported by the 2.49% run made by the Philadelphia Semiconductor Index. The Nasdaq 100 now stands less than 1% off of its 13,720 high of August 2022, which is the intraday high for this index since April 2022.
Oh, on top of all of this warmth and fuzziness, Wednesday's breadth was fresh and minty too. Nine of the 11 sector SPDR ETFs closed in the green, with seven of them up at least 1%. Cyclicals were hot, taking the top-four slots on the performance tables as defensives were left behind, occupying the bottom three spots on those daily standings.
Winners beat losers by roughly 7 to 2 at the NYSE and by about 5 to 2 at the Nasdaq. Advancing volume dominated, taking an 81.3% share of composite Nasdaq-listed trade and a 79.6% share of that same metric for NYSE-listed securities.
Trading volume was much better as well. Trading volume increased 10.7% on a day-over-day basis for those Nasdaq names and 10.5% d/d for stocks domiciled at Wall and Broad Streets. While trading volume increased significantly across both the S&P 500 and Nasdaq Composite, it should be noted that neither index experienced a move in volume above their 50-day moving averages.
What does that mean? It likely means that traders are leading investors. Investors remain less convinced, while traders are taking advantage of (or intentionally creating) momentum. That said, the Russell 2000 did take back its 21-day exponential moving average (EMA) and 50-day simple moving average (SMA) on Wednesday. There could be some stickiness to the move across that grouping.
Ayyyy!
When I see ServiceNow ( NOW) CEO Bill McDermott, I think "Wow, this guy is the Fonz." Then I see Nvidia ( NVDA) CEO Jensen Huang, and I think... "No, this guy is the Fonz." What if you put these two cool cats together?
On Wednesday, ServiceNow and Nvidia announced a partnership to collaborate on developing "powerful, enterprise-grade generative AI capabilities'' (Nvidia's words) that will change the way that business processes are done, as automated workflows become faster and more intelligent. This after ServiceNow had announced a $1.5B buyback program.
ServiceNow is using Nvidia software to develop custom large language models training on "big data" for use specifically on the ServiceNow Platform. The two firms are exploring several ways that the use of generative AI can simplify and increase productivity across a number of uses through heightened accuracy.
Check out these charts:
Ascending triangle pattern (bullish) with a $493 pivot. A take and hold of that level would put NOW's target price in the high $560's.
The trend is your friend? NVDA is up 179% since the lows of October 2022. Oh, that reminds me... Advanced Micro Devices ( AMD) , while not part of this story, certainly is part of the AI story and CEO Lisa Su certainly is one of the "cool kids."
Check this out:
AMD is trending similarly to NVDA and not only stands up 90% from its October lows, but also closed above its $102 pivot. That puts the current target at $117, unless the April through May cup pattern adds a handle. In that case, the pivot shifts from the left side of the cup to the right, and that would increase not only the pivot but also the target.
Economics (All Times Eastern)
08:30 - Initial Jobless Claims (Weekly): Expecting 254K, Last 264K.
08:30 - Continuing Claims (Weekly): Last 1.813M.
08:30 - Philadelphia Fed Manufacturing Index (May): Expecting -19.5, Last -31.3.
08:30 - CB Leading Indicators (Apr): Expecting -0.5% m/m, Last -1.2% m/m.
10:00 - Existing Home Sales (Apr): Expecting 4.3M, Last 4.44M SAAR.
10:30 - Natural Gas Inventories (Weekly): Last +78B cf.
The Fed (All Times Eastern)
09:05 - Speaker: Reserve Board Gov. Philip Jefferson.
09:30 - Speaker: Reserve Board Gov. Michael Barr.
