Thursday belonged to the Bulls as we opened higher (gapping up 0.57% in the SPY, up 0.37% in the DIA, and up 1.27% in the QQQ). After that, a long, steady rally kicked in, carrying all three major indices to new highs all day long. This action gave us gap-up, large white-bodied candles in the DIA, SPY, and QQQ. In fact, all three indices printed their largest gains in months as all three major indices also crossed back above their T-line (8ema). In fact, if you were a little loose with the definitions, you could even say the SPY and DIA printed Morning Star signals while the QQQ printed a Bull Kicker signal. However, again this happened on less-than-average volume.
On the day, all 10 sectors were in the green with Consumer Cyclical (+2.27%) leading the way higher and Energy (+0.28%) lagging behind the other sectors. At the same time, the SPY gained 1.99%, DIA gained 1.58%, and QQQ gained 2.72%. VXX fell 4.34% to 39.43 and T2122 popped out of the oversold territory and into the mid-range at 59.12. 10-year bond yields rose to 3.526 while Oil (WTI) gain 0.61% to $74.77 per barrel. So, the cumulative effect of strong earnings, especially in the big tech names, overcame fear over regional banks and recession…at least for a day.
In economic news, Preliminary Q1 GDP came in far short of expectations at +1.1% (compared to a forecast of +2.0% and a Q4 GDP of +2.6%). In addition, the GDP Price Index (Preliminary) came in hotter than expected at +4.0% (versus a forecast of +3.7% and a Q4 value of +3.9%). This tells us that the +1.1% GDP number is actually artificially high due to inflation. If you are a “glass half empty” kind of person, you’d say that means we’re heading into stagflation…inflation is higher than expected and growth is smaller than expected. However, personally, I choose to look at this as the Fed is going to see GDP growth slowing quickly and believe that they have done enough to ease inflation with the rest just being a matter of time. At the same time, Weekly Initial Jobless Claims came in below expectations at 230k (compared to a forecast of 248k and the prior week’s 246k reading). Then after the close, the Fed reported its Balance Sheet had shrunk slightly from $8.593 trillion to $8.563 trillion. The Reserve Balances of Banks with the Fed also shrunk from $3.165 trillion to $3.132 trillion.
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In stock news, LYFT said Thursday that it will lay off “about” 1,072 employees (26% of its workforce) in the first step of new CEO Risher’s cost-cutting program. At midday, JNJ announced it will indemnify its newly-formed consumer health unit Kenvue of all costs and liability related to talc litigation in the US and Canada. (As reported here in previous days, JNJ intends to IPO Kenvue while retaining vast majority ownership.) Elsewhere, HMC announced it is investing about $3 billion in a partnership formed with another Japanese company to produce batteries for electric vehicles and homes. In an unrelated announcement, HMC announced $2.7 million in funding for environmental and conservation education initiatives in the US. Meanwhile, Reuters reports that META has merged its advertising, business messaging, and commerce departments into one division as part of the broader cost-cutting program. There was no word on any related staff reductions yet. Executives at large drugmakers told Reuters Thursday that they are searching for acquisition and ramping up research spending as their future profit pipelines are drying up (current drugs will face patent sundown). The companies cited are MRK, AZN, ABBV, LLY, and BMY. Finally, the USDA reported that flooding in the upper Midwest (due to record winter snowfalls that are now melting) will wreak havoc on the Mississippi River. This will halt barge traffic for weeks to come. (60% of US grain exports and a similar percentage of US fertilizer shipments normally use that waterway in their supply chain. This will cause shippers to find alternate, more costly transportation such as rail and trucking.
In stock legal and regulatory news, MA reported that it is under investigation by the US Dept. of Justice related to its practices on US debit cards and its competition against other payment networks for those accounts. (V revealed a similar probe in January.) Meanwhile, a US Appeals Court ruled in favor of META, rejecting the appeal of states Attorneys General who had sought to revive an antitrust case against the social media giant. The court stated the reason for the ruling was that the states had waited too long to file suit. Finally, when pushed on the matter of FRC, both the White House and Treasury Sec. Yellen told reporters that they, the FDIC, Fed, and state bank regulators in several states are keeping a close eye on the bank’s finances. Even after repeated questions, both the White House Press Sec. and Treasury Sec. Yellen did not offer an opinion on whether FRC depositors of amounts greater than $250,000 should be covered in the event of a bank run. However, they did say they have a track record of acting swiftly and decisively on such matters.
After the close, AMZN, HTHIY, MDLZ, X, WY, MHK, RSG, AJG, SKX, CC, GFL, RMD, ATR, SKYW, ALSN, DXCM, PINS, ACA, BZH, PEAK, MTX, EHC, ERIE, and AEM reported beats on both the revenue and earnings lines. Meanwhile, TMUS, INT, HIG, AMGN, EMN, LPLA, HUBG, CINF, DLR, SM, and SNAP missed on revenue while beating on earnings. On the other side, INTC, DNZOY, COF, GILD, LHX, PFG, FE, ATVI, SSNC, COLM, SAM, SGEN, and SSB all beat on revenue while missing on earnings. Unfortunately, OLN, CSL, and FLSR missed on both the top and bottom lines. It is worth noting that MDLZ, SKX, ATR, and ALSN all raised their forward guidance. However, INTC and HUBG both lowered their forward guidance. Finally, it is worth noting that INTC reported the largest quarterly loss in company history.
Overnight, Asian markets leaned heavily to the green side. Japan (+1.40%), Shanghai (+1.14%), Taiwan (+1.09%), and Shenzhen (+1.09%) led the region higher. In Europe, the bourses are mostly in the red in late-morning trade. The CAC (-0.62%), DAX (-0.19%), and FTSE (-0.22%) are leading the region modestly lower going into lunch. In the US, as of 6:45 am, Futures are pointing toward a modestly red start to the day. The DIA implies a -0.29% open, the SPY is implying a -0.31% open, and the QQQ implies a -0.26% open at this hour. At the same time, 10-year bond yields are back down to 3.481% as money seeks safe harbor and Oil (WTI) is up just less than four-tenths of a percent to $75.02/barrel in very early trading.
The major economic news events scheduled for Q1 Employment Cost Index, March PCE Price Index, and March Personal Spending (all at 8:30 am), Chicago PMI (9:45 am), and Michigan Consumer Sentiment (10 am). Major earnings reports scheduled for the day include AON, ARCB, ARES, AVTR, BLMN, CCJ, GTLS, CHTR, CVX, CL, DAN, XOM, FMX, GNTX, IMO, JKS, LAZ, LYB, NYCB, NWL, NHYDY, NVT, POR, SAIA, and TRP before the open. There are no reports scheduled for after the close.
So far this morning, XOM, CVX, SONY, MBGAF (Daimler), KMTUY (Komatsu), ELUXY (Electrolux), CRI, BBVA, CL, TRP, BLMN, POR, and NVT all reported beats on the revenue and earnings lines. Meanwhile, LYB, GTLS, and CCJ missed on revenue while beating on earnings. On the other side, AON, NWL, ARES, CHTR, and APELY beat on revenue while missing on earnings. Unfortunately, ARCB and LAZ missed on both the top and bottom lines.
With that background, it looks like the large caps are going back to test their T-lines (8ema) as support early this morning. If the Bulls are going to follow through on Thursday’s strong candles, they’ll need to work for it after AMZN reported a blowout quarter but then put a damper on the party by warning about cloud services growth. That combined with INTC getting slaughtered (worst quarterly loss ever) has the big tech names (long the market leaders) feeling a little blu (make that red) this morning. However, that is tempered a bit by yet another record quarterly profit from XOM. Over-extension is not a problem based on either the T-line or the T2122 indicator. Interestingly, the Fedwatch tool tells us that confidence in a 0.25% rate hike by the Fed next week has resurged since yesterday morning. We are now back up to an 85% probability of that, with the other 15% probability being “no hike.” Beyond next week, markets see very little (21%) chance of an additional increase this year and most are actually betting on rate decreases sometime in the Fall. (That would be against what the Fed has repeatedly said, but that is what the Fed Fund Futures tell us.) Right now, the Bulls have work to do (resistance to overcome) but the ball is in their court. Finally, don’t forget it’s Friday. Get your account ready for the weekend news cycle.
As always, be deliberate and disciplined…but don’t be stubborn. If you have a loss, admit you were wrong and take that loss before it gets out of hand. And when the price does move in your direction, always move your stops in your favor and take a little profit off the table. You have to keep the “Legend of the man in the green bathrobe” in mind. In a winning situation, it is NOT HOUSE MONEY you’re betting, it’s YOUR MONEY! There is absolutely no reason to keep raising your bet (risk) size just because you’ve had a win. Finally, remember that trading is not a hobby. It’s a job. The money is real and so is the risk. So, treat it that way. Do the work and follow the process. Stick to your trading rules, trade with the trend, and take those profits when you have them. Do the work!
See you in the trading room.
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