“Never let the future disturb you. You will meet it, if you have to, with the same weapons of reason which today arm you against the present.”
— Marcus Aurelius, stoic philosopher and last of the “Five Good Emperors.”
“Maybe, but you are probably better off handling the present with an eye on the future.”
— You’re old buddy, Sarge, late-night philosopher, and one of far too many semi-mediocre economists.
You Were Wondering
Equity markets traded broadly higher on Monday, while strength simultaneously moved into the longer end of the Treasury security yield spectrum. All as the U.S. dollar softened. The move really started two weeks ago as the S&P 500 bounced off of its 50-day simple moving average (SMA), and then did so again (albeit against that rising blue line) last week.
Most importantly, this sudden, and nearly all positive flow of capital permitted the Nasdaq Composite to not only take, but hold both its own 50-day SMA as well as its 21-day exponential moving average (EMA), closing above both of those key lines for the first time since the first trading day of this month, Monday May 3.
I also see that 10 of the 11 S&P sectors closed in the green for the day, led by Communications Services ( (XLC) ), +1.82%, which was in turn led by internet-related stocks. The Dow Jones U.S. Internet Index ran 2.6% for the session. Index leadership came from well-known social media stocks such as Snap (SNAP) , Twitter (TWTR) and Pinterest (PINS) .
The Technology sector ( (XLK) ) came in second place on Monday, up 1.78%, led by semiconductors and semiconductor equipment providers. Applied Materials (AMAT) screamed 4.6% higher, while Nvidia (NVDA) continues to bask in the glow (+4.1%) of its already announced 4-for-1 stock split ahead of the company’s Wednesday afternoon’s earnings release.
We understand that downward pressure on interest rates brings about an un-rotation (Cyclicals into Growth) of the prevalent 2021 rotational (Growth into Cyclicals) theme. On Monday, however, (and even of late) there just seemed to be less interest on the offer (supply) side of the market. Have we run into a sellers’ strike? There is reason to believe. There is also reason to believe that traders and investors are just less interested going into the Memorial Day Weekend. I expected lower trading volumes Thursday and Friday, but this almost complete lack of participation, this early, I did not see coming.
There were words, and there (always) are algorithms. Hence, something has to give every morning regardless of circumstance.
On Monday, the catalyst came from economists, and their words — pure and simple. Sure, we heard from Fed Governor Lael Brainard who spoke from the Coinbase (COIN) cryptocurrency-themed clambake. Sure, we heard from St. Louis Fed President James Bullard who spoke on Yahoo Finance. Sure, we heard from Atlanta Fed President Raphael Bostic as well.
They all more or less backed each other up. More inflation, probably temporary, no need to change course, yada. yada, yada. Their words might have fallen upon deaf ears if not for the survey released by the National Association for Business Economics, or NABE. This survey is what moved markets on Monday. Don’t let some non-practitioner who has not played the game in decades if ever, tell you differently.
Talk to Me, Goose
The NABE survey (49 real business economists, so they are a little closer to being in the trenches with us) shows expectations for second-quarter GDP moving up to a consensus of 8.5% (q/q, SAAR) from the 5.2% forecast as recently as March. In fact, the median forecast for full-year 2021 GDP from this group has moved up to 6.7% from 4.8% over that same time frame.
Just for reference, the Atlanta Fed GDPNow, which is a real-time snapshot based on already reported data, currently has the second quarter running at 10.1%, but remember that this is not a prediction, and that this week, April Durable Goods (expected to be slower, but steady), April Personal Income (expected to plummet, printing in deep contraction), and Personal Outlays (also expected to slow dramatically) will be factored into the Atlanta Fed’s model over Thursday and Friday.
The group also sees Non-Farm Payrolls returning to pre-pandemic levels either sometime in late (Q4) 2021 or early 2022. So, the story here is that these 49 business economists are now, in their view, seeing greater economic growth than they had prior, as well as an earlier recovery in labor markets than they had expected. That’s not the kicker though.
Here’s the kicker.
Enter Jan Stenerud
The NABE survey showed that the consensus view of this group for the core PCE Price Index drops to 2.1% (y/y) for Q4 2021, from 2.6% for Q2. The group sees the CPI hitting 2.8% (y/y) late this year, and then dropping to 2.4% by the end of next (2022) year. In other words, despite the recent spike in consumer-level inflation, this group does not see runaway prices, and does expect whatever inflation we do experience to be less structural than has been feared, and perhaps, dare I say… “tranistory.”
What that means is that our central bankers and these business economists are interpreting what they are seeing in very similar fashion. I went to my local Home Depot (HD) Monday. I needed a few things. My yard had become a disaster after I was so sick last year. I bought far less “stuff” than I wanted to, simply because I refused to pay prices well above what I had pictured in my head. If the American consumer, on the broad level, has the same reaction when making discretionary purchases, the Fed, and those participating in the NABE survey may just be on the mark.
While still cautious, there is still a believable story behind the “transitory” narrative. I still think monetary policy is too loose and that MBS purchases should have been tapered down to zero three months ago. That said, while the central bank does not necessarily have your best interest at heart (remember, we save ourselves), they are not batspit crazy. Well, at least not about this.
If a Tree Falls in the Forest…
The drop-off in activity is significant enough to cast enough doubt on anything taken as trend or confirmation right now. Aggregate trading volume dropped 7% for NYSE-listed names on Monday from already low levels on Friday. Nasdaq-listed aggregate trading volume experienced a 4.6% drop-off.
For names constituent to the S&P 500, trading volume fell 20% short of its own 50-day SMA, as Monday’s aggregate S&P 500 based volume printed at the lowest level since late April.
Now, this gets incredible. Aggregate trading volume for names constituent to the Nasdaq Composite landed 25% short of its own 50-day SMA, and printed at the lowest level (excluding half days for Thanksgiving Friday and Christmas Eve) since November 3, 2020. Oh, and Monday’s Nasdaq Composite-based trading volume did not really beat those half days by much at all.
I Don’t Care
Apparently, Tesla (TSLA) CEO Elon Musk, and MicroStrategy (MSTR) CEO Michael Saylor have been talking to North American bitcoin miners (and tweeting about it) about energy usage transparency, and how to accelerate the use of renewable or sustainable energy to mine cryptocurrencies, now that the public (partially thanks to Musk himself) understands how harmful this asset class is to the environment.
My take: It’s all talk until it’s not. In the meantime, how about trying to find a legitimate purpose? Oh, my firm is planning to launch a crypto-pet rock later this year. Demand is expected to be excellent.
I Should Care
President Biden has supposedly come down to $1.7 trillion from his original plan for a $2.25 trillion infrastructure building package. Last week, certain Republican leaders went as high as $800 million and $900 million. On Monday, Sen. Roger Wicker of Mississippi talked about spending $1 trillion over eight years.
If other Republicans get behind Wicker, the ball will have rolled about $500 million toward the center from both sides. Can we get to something between $1 trillion and $1.7 trillion? Financial markets would love that.
If there is no more movement on either side, will Democrats try to go it alone? Would that short-term victory cost them dearly in 2022? This is the story going forward, but not for today.
Microsoft (MSFT) blasted off after retaking both the 21-day EMA and 50-day SMA lines on Monday. We have been waiting for those lines to converge and hopefully for this to happen, creating potential for breakout.
My price target for MSFT stands at $300, which is a reiteration. My panic point is also a reiteration at $229, but might be moved into the $230s if this Monday rally is built upon this week.
Now that Apple (AAPL) has wrapped up the Epic trial while announcing the early June dates for the Worldwide Developers Conference, the stock appears to be (possibly) a day or two behind Microsoft technically.
My price target remains $165, while my panic point has been moved to any actual breakage of the 200-day SMA, (not a piercing), which is a moving target. It had been $126, the last time I communicated to you publicly regarding AAPL.
Economics (All Times Eastern)
08:55 – Redbook (Weekly): Last 12.6% y/y.
09:00 – Case-Shiller HPI (Mar): Expecting 12.1% y/y, Last 11.9% y/y.
09:00 – FHFA HPI (Mar): Expecting 1.0% m/m, Last 0.9% m/m.
10:00 – Consumer Confidence (May): Expecting 119.1, Last 121.7.
10:00 – New Home Sales (Apr): Expecting 960K, Last 1.021M SAAR.
10:00 – Richmond Fed Manufacturing Index (March): Expecting 16, Last 17.
16:30 – API Oil Inventories (Weekly): Last +620K.
The Fed (All Times Eastern)
10:00 – Speaker: Reserve Board Gov. Randal Quarles.
Today’s Earnings Highlights (Consensus EPS Expectations)
Before the Open: (AZO) (18.38)
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