Light news day. Light on the macro. Light on the earnings front.
Economists at Goldman Sachs ( GS) led by Jan Hatzius reduced what they see as the probability for a U.S. recession within the next 12 months to 25% from 35%. Why? Two reasons.
Hatzius sees the "near-crisis" event in regional banking as having largely passed. He also acknowledged the near miss in regards to the debt ceiling and the U.S. sovereign default that never happened.
Is that this kiss of death? Let's hope not.
Double Line Capital CEO Jeffery Gundlach, whom I have a high regard for, later on certainly appeared to take the other side of that trade as he sees the U.S. economy potentially "soon to be at the front end of a recession."
The Market Broadens
While Treasury securities beyond T-Bills for the most part stayed put on Tuesday, equity markets moved higher. But for a change, the market was not led by a few very large-cap names, the rally was quite broad. Leadership came from cyclicals that were themselves led by the banks, while small-to mid-cap stocks outperformed the large-caps.
Readers will see below that the iShares Russell 2000 ETF ( IWM) on Tuesday broke above the top trendline of an upward-sloping price channel in place since the early March selloff. In doing so, the IWM not only has retaken its 200-day simple moving average (SMA) (on Friday and re-tested from the upside on both Monday and Tuesday), but closed on Tuesday above a trading volume shelf that had been created over the past three months.
This could be the most significant technical development for this ETF and the underlying index seen in quite some time.
The "trifurcated" nature of the equity marketplace, while not very visible on a weekly basis, but quite visible on the daily performance tables (which are dominated by programmed, algorithmic trading) returned. Across the 11 S&P sector-select SPDR ETFs, the Financials ( XLF) and Discretionaries ( XLY) both gained more than 1% on the session as sectors considered to be cyclical in nature took places one through five (Thanks, Goldman), sectors considered to be "growthy" in nature finished in places seven and eight and the four sectors considered to be defensive in natures took sixth place along with places nine through 11. Health Care ( XLV) was the laggard on Tuesday as four sectors in total closed in the red.
Minty Fresh
Breadth was also strong on Tuesday. Winners beat losers at the NYSE by roughly 7 to 2 as new highs beat new lows by more than 6 to 1. At the Nasdaq where big-tech lives, but so do a lot of smaller-cap names, winners beat losers by about 5 to 2, with new highs beating new lows by a smidge better than 3 to 2.
Advancing volume took a 79.1% share of composite NYSE-listed trade and a 72.3% share of composite Nasdaq-listed trade as aggregate trading volume increased on a day-over-day basis across NYSE and Nasdaq listings as well as across the constituencies of both the S&P 500 and Nasdaq Composite. On Tuesday trading volume across both of those indices surpassed their respective 50-day trading volume moving averages.
Simply put, portfolio managers did put some cash to work on Tuesday, and they spread it out.
That Said...
While the Technology SPDR ETF ( XLK) gave up 0.02% on Tuesday, within that sector, the Philadelphia Semiconductor gained 1.28%. This, despite recent leader Nvidia ( NVDA) surrendering 1.32%. What happened? Two large-cap semis outperformed on Tuesday. Intel ( INTC) moved 3.68% higher as the firm commenced with a secondary stock offering of 35M shares of Mobileye ( MBLY) in a move to raise some cash.
The other large-cap on the move was Advanced Micro Devices ( AMD) as that stock ran 5.34% after keyword-reading algorithms picked up on the firm's presentation at the Bank of America ( BAC) 2023 Global Technology Conference. At that conference, AMD's Dan McNamara, who is Senior VP and GM of the Server Business Unit, was interviewed by BAC's Vivek Arya. Investors are going to want to read this quote by McNamara regarding the coming of new products in the near-term future.
This is what moved the stock:
"I just talked about Genoa and that's sort of the point of the spear with our confidence going forward within the data center. We follow up very quickly, and you're going to hear about this next week with Bergamo, which is a cloud-native optimized device with high-density and very good performance per watt in energy efficiency for cloud-native computing.
"And then we also are announcing or launching Genoa-X, which is tuned for technical computing. So workloads like computational fluid dynamics and EDA and all sorts of advanced physics modeling. So we feel like those two products will get a nice adoption across both cloud and the enterprise.
"And then we follow up with that with Sienna, which is not another yet optimized Zen 4, part of the Zen 4 portfolio. It's optimized for telco edge and storage, and that brings very high-density compute at a very low cost and low power package. So from a server roadmap through the balance of this year, we're executing and enabling our customers to deploy these three new products in addition to Genoa.
"And then lastly, with the Instinct product line with MI 300, that starts to ramp in Q4, and we see that with supercomputing and some new AI wins that we have. So -- we feel that's why we're confident. We have confidence in the back half. And our customer feedback today on the evaluation of all of these products is very, very strong in terms of the value we're bringing. And again, it's all about optimizing by the workload."
For those unaware, AMD's MI 300 is the firm's answer to Nvidia's H100. The competition has just begun.
Do all gaps have to be filled? They usually do.
So far, thanks to Tuesday's appearance at the BAC conference, the top end of that unfilled gap has been where support has been found, reinforcing the late-May breakout from that two-month cup (no handle) pattern. Unless this early June swoon was the handle. That would take our pivot from $102 to $130. That would take our price target up to at least $150.
You know who has a $150 target on AMD? Harsh Kumar of Piper Sandler, that's who. Who's Harsh Kumar? Oh, simply one of a very few sell-side analysts who would make the short list if we ever had to name Wall Street's absolute top analyst. This guy is the cream of the five-star crop and in this name, he's on our side. Smile.
Almost Slapstick at This Point
It was more than half of a lifetime ago. A few hundred of us were loading ourselves and our gear on to a U.S. Air Force C-130 Hercules.
We were going on a little ride to Central America. My first airlift. I did not know much about the large aircraft used at the time. I was a grunt. I was a corporal. I mosied up to an Air Force-enlisted man serving on the flight crew, who seemed to be about my age and asked him, "Who made this craft that you're taking us on?" He said, "Not Boeing ( BA) ." He went back to his work and largely ignored his human cargo the rest of the way. He had his job. We had ours.
Did that mean that he liked Boeing, or did not like Boeing? I never held that one-minute conversation against Boeing, but I never forgot it either. The Air Force guys apparently have aircraft they like and aircraft that they don't. The C-130 is a Lockheed Martin ( LMT) product by the way and has been in service since 1956. It got us to the jungle in a couple of hours.
On Tuesday, Boeing had to announce that deliveries of the 787 Dreamliner will be delayed after the firm discovered a defective part. The problem impacts about 90 already built aircraft yet to be delivered and a few aircraft still in assembly at its South Caroline location. These aircraft now have to be checked for improperly sized shims within the horizontal stabilizer, which is that small wing attached to the tail of large aircraft. Boeing still expects to deliver between 70 and 80 Dreamliners this year. The company is working with U.S. regulators to see if action needs to be taken for 787s already in service.
The defective parts are not considered an immediate safety risk. However, the FAA will not issue new airworthiness certificates for this aircraft until satisfied.
From the 'Who Cares?' Department
Apparently, Saudi Arabia's Public Investment Fund is ready to pump roughly $3B into the largest professional golf organization in the world. Under the agreement revealed on Tuesday, the PGA Tour and the "PIF" have agreed to create a jointly managed entity that will include all commercial operations and end any litigation between the two entities. This basically merges the U.S.-based PGA Tour and Saudi-backed LIV Golf Tour. The DP World Tour (Europe's top tier) has also signed on to this deal.
As a sports fan, I am far more interested in seeing how long it takes Steve Cohen to go "Wall Street" on New York Mets leadership now that the baseball team has fallen below .500 on the season. Trust me, these guys have never seen anything like what is probably about to hit them.
Economics (All Times Eastern)
07:00 - MBA 30 Year Mortgage Rate (Weekly): Last 6.91%.
07:00 - MBA Mortgage Applications (Weekly): Last -3.7% y/y .
08:30 - Balance of Trade (Apr): Last $-64.2B.
10:30 - Oil Inventories (Weekly): Last +4.488M.
10:30 - Gasoline Stocks (Weekly): Last -207K.
15:00 - Consumer Credit (Apr): Last $26.51B.
The Fed (All Times Eastern)
Fed Blackout Period.
