The bulls were unable to follow through on the Tuesday rebound in a mixed and choppy day though energy, health care, and utilities enjoyed some buying activity.  With the 2^nd quarter coming to an end watch for the possibility of some end-of-quarter window dressing but keep in mind earnings, Fed uncertainty, and the coming holiday could produce choppy low-volume price action in the afternoons.  However, price volatility is likely with GDP, Jobless Claims, and Housing numbers pending.

Asian markets mostly declined as we slept with the tech-heavy Hong Kong exchange leading the selling down 1.24% on the day. However, European markets are working to extend yesterday’s relief rally with only the FTSE struggling with a slight decline.  U.S. futures point to a bullish open ahead of market-moving economic data that could quickly improve or reverse market conditions.

Economic Calendar

Earnings Calendar

Notable reports for Thursday include AYI, GBX, LNN, MKC, NKE, PAYX, PRGS, RAD, SMPL, & SGH.

News & Technicals’

The Federal Reserve’s annual stress test revealed that all 23 of the U.S. banks that participated in the exercise could withstand a severe recession and maintain their lending activities. However, the test also showed a wide range of loan loss rates among the banks, depending on their exposure to different types of loans. Credit cards were the most vulnerable to defaults, resulting in a high loss rate of 14.7% for Capital One, while Charles Schwab had the lowest loss rate of 1.3% due to its focus on brokerage services. The stress test results could pave the way for some banks, such as JPMorgan Chase and Wells Fargo, to announce higher dividends and share buybacks on Friday after the market closes.

A massive healthcare fraud scheme that targeted programs for the elderly and disabled was busted by the Department of Justice, which announced charges against 78 people for their involvement. The DOJ said the fraudsters submitted $2.5 billion in false claims and used the proceeds to fund lavish lifestyles, buying expensive cars, jewelry, and yachts. Some of the defendants allegedly exploited telemedicine services to make fraudulent claims, while others allegedly billed for prescription drugs that were not medically necessary or not provided at all.

The market had a mixed and choppy day on Wednesday, with the S&P 500 barely moving, the Dow losing 73 points, and the Nasdaq rising 0.3%. Some sectors that benefit from economic growth, such as consumer discretionary, communication services, and energy, outperformed others that are more defensive, such as utilities, consumer staples, and health care.  The 10-year Treasury yield stayed around 3.75%, in nearly a 100 basis point inversion with 2-year bonds. This morning all eyes are focused on the pending GDP, Jobless Claims, & Home Sales numbers with a smattering of earnings as we wind down the quarter.  Expect some price volatility this morning keeping in mind we could see some end-of-quarter window dressing.  However, we could also see volumes begin to decline as traders head out to extend their holiday.

Trade Wisely,

Doug

Yesterday’s better-than-expected economic data inspired the bulls but it may also be a double-edged sword that inspires the Fed hawks and raises the odds of rate increases. That said, the QQQ and SPY charts enjoyed a nice relief rally that held trend and price support levels.  The DIA and IWM also rallied but remained challenged by significant overhead resistance. Today we have a few more earnings, potential market-moving economic reports, and another speech from Jerome Powell to add a dose of uncertainty as to what comes next. 

Asian markets closed mixed with modest gains and losses while Japan continued its breakout rally surging 2.02%.  European markets are breaking their losing streak this morning despite the warnings from the ECB that more rate hikes are on the way to combat inflation.  U.S. futures however seem to be taking an wait and see approach this morning suggesting a mixed flat open ahead of earnings and economic data that could set the direction for the day.

Economic Calendar

Earnings Calendar

Notable reports for Wednesday include BB, GIS, FUL, KFY, MU, FIZZ, & WOR.

News & Technicals’

The European Central Bank (ECB) has been tightening its monetary policy in response to the soaring inflation in the eurozone, which reached a record high of 4.9% in November. The ECB raised its key interest rate to 3.5% earlier this month, the fifth increase since July 2022, when it started to lift rates from the historic low of 0%. However, ECB chief economist Philip Lane cautioned that the market should not expect a rapid reversal of the restrictive policy, as the inflation outlook remains uncertain and the economic recovery is uneven. He told CNBC on Tuesday that the timing and speed of policy normalization would depend on the evolution of inflation and growth in the coming months.

Google has faced an internal backlash over a drag show that was scheduled to take place as part of its Pride celebrations. The show, which was organized by a group of LGBTQ+ employees and allies, was met with resistance from some co-workers who signed a petition to cancel the event. The petitioners argued that the drag show was offensive and disrespectful to Christians, and accused Google of discriminating against their religious beliefs, according to CNBC. Google has since decided to distance itself from the show, which is still open to the public, and instead invited its employees to join a social gathering at its offices.

A federal watchdog has warned that a huge amount of Covid aid money may have been lost to fraud. The Small Business Administration (SBA), which administered two major relief programs for small businesses affected by the pandemic, may have disbursed more than $200 billion to fraudulent applicants, according to the inspector general. This would amount to 17% of the total $1.2 trillion that the SBA distributed through the Economic Injury Disaster Loan program and the Paycheck Protection Program. The inspector general blamed the massive fraud on the lack of adequate internal controls and oversight, as the SBA rushed to deliver the loans amid the crisis.

Tuesday’s economic data, durable goods orders, consumer confidence, and new home sales in May were better than expected bringing out the bulls, and raising the odds of future rate increases to reach the Fed’s 2% target.  The S&P 500, Nasdaq, and Russell 2000 all rose by more than 1% while big tech kept up their momentum gaining more than 1.5% on weaker-than-average volume. That said the DIA and IWM remain under significant price resistance while the tech giants almost exclusively keep the SPY and QQQ trends bullish.  Today traders will have a few more earnings reports, trade, inventory, and oil numbers along with more comments from Jerome Powell to keep them guessing. Remember we could see possible end-of-quarter window dressing and/or declining volume as traders shut down early this week to extend the holiday.  Watch for whipsaws around data points with a possible choppy light volume filling as we make our way toward the weekend.

Trade Wisely,

Doug

Yesterday some of the tech sector giants experienced some selling pressure as the bears attacked suggesting this overbought area of the market may finally find some profit takers.  Bond yields proved stubborn despite an otherwise choppy market day on lower-than-average volume.  That, however, could change today with the pending economic reports that may prove to be market-moving creating some price volatility.  Watch for whipsaws, and possible end-of-quarter window dressing as the uncertainty of the FOMC’s next actions and investors ponder current valuations in light of the pending third-quarter earnings season.

  Asian markets ending the day mixed while we slept led by Hong Kong rising 1.88%.  European markets trade mixed and choppy this morning as they wait on the ECB comments that have recently talked hawkishly on their inflation fight.  U.S. futures currently point to a modestly bullish open ahead of possible market-moving economic data that could inspire the bulls or the bears so be prepared for just about anything.

Economic Calendar

Earnings Calendar

Notable reports for Tuesday include AVAV, JEF, SCHN, & WBA.

News & Technicals’

Lordstown Motors, a startup company that builds electric pickup trucks, has filed for bankruptcy protection and sued its former partner Foxconn, the world’s largest contract electronics manufacturer. The lawsuit accuses Foxconn of fraudulent conduct and breaching an agreement to invest up to $170 million in Lordstown and to handle the manufacturing of its vehicles at an Ohio factory that Lordstown bought from General Motors in 2019. Lordstown claims that Foxconn willfully and repeatedly failed to execute the agreed-upon strategy, leaving it with no choice but to seek Chapter 11 protection in Delaware. Foxconn has not yet responded to the allegations.

Retatrutide is a novel drug candidate from Eli Lilly that targets three hormones involved in regulating appetite and blood sugar: GLP-1, GIP, and glucagon. It is a weekly injection that has shown promising results in treating obesity and type 2 diabetes. According to new results from two phases 2 trials, retatrutide helped patients lose up to 24% of their weight after almost a year, the highest reduction seen in the obesity drug space to date. The researchers also reported that the weight loss did not appear to plateau after 48 weeks, suggesting that longer treatment could lead to more benefits. Retatrutide also improved blood sugar, cholesterol, and blood pressure levels in patients with type 2 diabetes. Retatrutide has an overall safety and tolerability profile similar to other hormone-based therapies for obesity.

The S&P 500 lost 0.5% on Monday, as the bears attacked some of the tech giants that have served as the market leaders this year. The Dow also slipped 13 points, while the Nasdaq fell 1.2% retreating from its overextended condition. 10-year Treasury yields dipped below 3.7% in the morning before recovering slightly by the end of the day. However, Monday’s market action was mild overall on lower than average volume. Today’s direction could be determined by the economic calendar news with Durable Goods, Consumer Confidence, and New Home Sales figures that could inspire the bulls and bears. Keep in mind Europe is waiting for an ECB rate decision.

Trade Wisely,

Doug

After Jerome Powell suggested more rate increases likely during his Congressional testimony traders and investors remained wary as the low volume pullback finished a week of uncertainty.  However, no technical damage occurred so it will be interesting to see if the bulls can respond with a comeback this week as we enter the corporate buyback period.  Though we don’t have much to inspire the bull or bears today we have significant economic reports this week that could move the market as we move toward the end of the quarter and next week’s holiday shutdown.

Overnight Asian markets struggled as oil prices surged due to the Russian rebellion and closed the day mostly mixed.  European markets trade mostly lower to start the new week though selling energy appears light and uncertain.  As a result, early futures gains have turned slightly negative suggesting a flat to slightly bearish open with very little data to provide directional inspiration so keep an eye on the news cycle.   

Economic Calendar

Earnings Calendar

Notable reports for Monday include CCL & CUK.

News & Technicals’

A failed coup attempt by a Russian mercenary leader has shaken the Kremlin and exposed the growing rift between President Putin and his former loyalist. Yevgeny Prigozhin, who heads a notorious private military company known as Wagner Group, tried to seize power in Moscow on Friday with the help of hundreds of armed men. However, his plot was quickly foiled by the security forces and he was forced to flee to neighboring Belarus. The incident has raised questions about Putin’s control over his security apparatus and his ability to deal with the rising ambitions of Prigozhin, who has been accused of meddling in foreign conflicts and elections.

The U.K. is facing a severe mortgage crisis as the Bank of England unexpectedly raised its base rate by half a percentage point on Thursday. The move, which was aimed at curbing inflation, will increase the cost of borrowing for millions of homeowners who have variable-rate mortgages linked to the central bank’s rate. Finance Minister Jeremy Hunt held an emergency meeting with major lenders on Friday to discuss ways to ease the pressure on borrowers and prevent a wave of defaults and foreclosures. According to a study by the NIESR, the rate hike could push 1.2 million households (4% of the total) into financial distress by the end of the year as they run out of savings to cover their mortgage payments.

The U.S. corporate sector is facing a surge in defaults and bankruptcies as the economy struggles to recover from the pandemic. According to Moody’s Investors Service, 41 U.S. companies defaulted on their debt in the first five months of this year, more than twice as many as in the same period last year. The main causes of default are weak demand, high leverage, and rising interest rates that make refinancing harder and more costly. The number of U.S. companies filing for bankruptcy protection has also soared to the highest level since 2010, indicating that many businesses are unable to cope with their debt burdens.

Investors remained wary Friday as they feared that central banks might have to keep raising interest rates to curb inflation, though markets recovered some of their losses by the end. The S&P 500 broke its five-week winning streak with a weekly drop, while global stocks had their worst weekly performance in over three months. Two factors that weighed on sentiment were the sluggish European economic data that came out overnight and the smaller-than-expected Chinese rate cuts this week. Oil prices also fell for the day and the week, losing almost 5%. Meanwhile, government bonds and the U.S. dollar gained, reflecting the nervous mood in equity markets where defensive sectors did better.  We have entered the corporate blackout period and with a holiday next week expect volume to begin to decline by the end of the week. Today we have both a light earnings and economic calendar but all eyes will be focused on Tuesday’s Durable Goods report hoping to see continued strength in the consumer and a resumption of the market rally.

Trade Wisely,

Doug

After the very exuberant rally, the bulls have taken a breather and though the bears seem to be slightly more active they’ve not shown much aggressiveness as yet.  Though the QQQ took the worst of the day with Jerome Powell suggesting more rate hikes are likely the indexes remain in bullish patterns suffering no technical damage.  However, today we have a few possible market-moving economic reports, a handful of notable earnings along with plenty of Fed talk keeping the path forward uncertain.  Prepare for just about anything as we wind down the quarter with a new round of earrings just around the corner.

Asian market continued to show some weakness in reaction to the Fed rate comments with the tech-heavy Hong Kong exchange once again leading the selling down 1.98%. European markets facing a BOE rate decision trade red across the board.  Ahead of a handful of earnings and the busiest day this week of economic data U.S. futures point to a negative open as Jerome heads the hill to be grilled in Congress for a second day.

Economic Calendar

Earnings Calendar

Notable reports for Thursday include ACN, DOOO, DRI, CMC, FDS, GMS, & SWBI.

News & Technicals’

As part of his first state visit to the U.S., Prime Minister Narendra Modi of India discussed a range of defense and technology partnerships with President Joe Biden and other U.S. officials on Thursday. The two leaders have also exchanged views on climate change, democracy, human rights, and the COVID-19 pandemic. Modi’s visit reflects the U.S. strategy of “friend-shoring”, which aims to reduce its dependence on China and strengthen its ties with other countries in the Indo-Pacific region.

Senator Jim Risch of Idaho, a Republican, has proposed a bill that would weaken the influence of unions in the U.S. labor market. The bill would make it illegal for unions to use labor slowdowns as a bargaining tactic, as they did in the recent West Coast port dispute, and impose heavy fines for such actions. The bill would also prevent unions from blocking port automation, which they fear would cost jobs and reduce wages. The bill faces strong opposition from Democrats and labor groups, who have defeated similar attempts in the past.

The online retailer Overstock.com has won the bid to acquire the brand name and online assets of Bed Bath & Beyond, the bankrupt home goods chain. The deal, worth $21.5 million, means that Bed Bath & Beyond’s physical stores will be shut down and its customers will be redirected to Overstock.com. The fate of Bed Bath & Beyond’s sister chain, Buy Buy Baby, will be decided in a separate auction next week.

So far this week the bulls have taken a breather in the past few days and the bears seem to be sniffing around a bit more though have yet to show much energy. Wednesday, the S&P 500 fell 0.5% and the Dow lost 102 points. The Nasdaq dropped more than 1%, as growth and technology stocks faced more selling pressure. Devoid of major economic news, investors were focused on the Fed’s policy outlook and the uncertainty that provides for the path forward. Asian and European markets have also seen some softness with possible stimulus on the way in China while ECB and BOE continue to see more rate increases as inflation remains stubbornly high. Today trades will look for inspiration in earnings reports, Jobless Claims, Existing Home Sales, Natural Gas & Peterloum numbers along with several Fed speaking including Jerome Powell. 

Trade Wisely,

Doug

The bears made an appearance on Tuesday as the market ended lower despite the bullish attempt to recover in the afternoon session on a day short on earnings or economic data.  The focus today will be on the string of fed speakers along with Jerome Powel beginning his 2-day congressional grilling on the hill.  Although the market may experience some volatility during his testimony depending on how hawkish or dovish he sounds no policy changes from the Fed are likely to be revealed.

While we slept Asian markets closed mostly lower with Hong Kong once again leading the selling down 1.98% at the close.  However, European markets trade mostly with modest gains at the time of writing this report despite U.K. inflation coming in hotter than expected at 8.7% indicating there is still more work to do by the ECB.  U.S. futures focused on the uncertainty of Fed policy currently indicate a flat open as they wait on the Powell testimony in Congress at 10 AM Eastern. 

Economic Calendar

Earnings Calendar

Notable reports for Wednesday include KBH, KFY, SCS, & WGO.

News & Technicals’

The relationship between the U.S. and China has deteriorated further after President Biden made a controversial remark about China’s leader Xi Jinping. Biden said he had “no illusions” about Xi and that he was “not a friend of democracy”. This comment angered China, which accused the U.S. of disrespecting its sovereignty and interfering in its internal affairs. The tension comes on the heels of a tense visit by Secretary of State Blinken to Beijing, where he tried to ease the friction caused by the U.S. shooting down a Chinese balloon in February. China denies that the balloon was used for spying and calls it a peaceful scientific experiment.

A new bill that aims to prevent big bank executives from getting excessive bonuses after their banks collapse or engaging in misconduct will be debated by the Senate Banking Committee. The bill called the RECOUP Act, is sponsored by the committee’s top Democrat and Republican, who say it will protect taxpayers and investors from bailing out failed banks. The bill would give regulators more power to claw back or cancel executive compensation if a bank violates the law or suffers major losses.

A Republican lawmaker is proposing a bill that would crack down on investment funds that factor in environmental, social, and governance issues, or ESG, in their decisions. Rep. Andy Barr, R-Ky., says his bill would protect investors from being misled by funds that claim to be ESG-friendly but do not disclose their criteria or performance. The bill is part of a broader Republican campaign to challenge what they see as “woke” investing that undermines American values and interests.

The stock market ended lower on Tuesday, losing some of the momentum from last week’s strong rally that extended the S&P 500’s streak of weekly gains to five. There was not much news or data to influence the market, which remained focused on the future of Fed policy. Interest rates edged down, with 10-year Treasury yields falling below 3.75%. Most sectors finished in negative territory, with energy and materials suffering the most as commodity prices declined. Today we have a parade of Fed speakers highlighted by the 2-day testimony in Congress from Jerome Powell.  Although it is unlikely he will reveal any policy changes, it’s possible the market could experience price volatility depending on how hawkish or dovish he sounds. 

Trade Wisely,

Doug

Last Friday as we headed into a 3-day weekend the six-day winning streak broke with a modest decline.  Is this a temporary pause or could we be at or near a summer market high as we wait for the next round of earnings?  Currently, the SP-500 10-year P/E ratio is 29.8 which is 47.4% above the modern-ear market average of 20.2 suggesting an overbought condition.  However, investor enthusiasm for risk may still push the index toward a 4500 print.  We have a light day on both the earnings and economic calendar with a bit of follow-through selling pressure showing up in the pre-market.

Asian markets traded mixed with modest gains and losses, however, the tech-heavy HSI fell 1.54%.  European markets trade red across the board this morning following Monday’s declines.  Ahead of a light day of earnings and economic reports U.S. Futures point to a lower open to begin our holiday-shortened week.

Economic Calendar

Earnings Calendar

Notable reports for Tuesday FDX & LZB.

News & Technicals’

The situation in Ukraine has escalated as Russian forces continue to launch air strikes on several cities and towns. The Ukrainian government has declared a state of emergency and activated its air defense systems. However, it admits that its counteroffensive is proving challenging due to the overwhelming number of Russian troops and aircraft. The international community has condemned the Russian aggression and called for an immediate ceasefire and dialogue.

The Bank of England faces a difficult decision as it prepares to announce its latest policy stance on Thursday. The central bank has to balance the risks of rising inflation and labor shortages against the uncertainties of the post-pandemic recovery and the potential impact of new variants of the coronavirus. The latest inflation data, due on Wednesday, is expected to show a further increase in consumer prices, adding to the pressure on the Bank to tighten monetary policy sooner rather than later.

The S&P 500 six-day winning streak broke on Friday which had lifted it to new highs for the year closing only slightly in the red. The big question is, have we put in a top or is this just a short-term pause in the overall rally? Investors have high hopes that the Fed is done raising rates despite the fact the committee suggested their terminal rate is 50 basis points higher as they work for the 2% target. The rally was more broad-based recently with more sectors and stocks joining the upward trend, but the Nasdaq still led the way, posting its best weekly performance since late January. Hopes of more stimulus from China and a weaker dollar also helped the bullish mood. Asian markets followed suit, as the Bank of Japan kept rates steady. Meanwhile, government bonds fell as the 10-year Treasury yield climbed to 3.77%.

Trade Wisely,

Doug

Although the Fed skipped a month in raising rates their hawkish look forward added uncertainty to the path forward.  The Dow experienced a huge whipsaw while a handful of tech stocks managed to hold the QQQ in the green for the close.  This morning traders face a busy morning of economic data that could move the market substantially as investors react to a complex summer outlook.  Bond yields surged higher after the Fed decision pressuring an already strained financial sector.  Whipsaws and price volatility are expected to remain challenging as the data rolls out this morning.

While we slept Asian markets traded mixed in reaction to the Fed decision but the tech-heavy HSI surged 2.17%.  European market trade was mostly lower this morning expecting a rate increase from the ECB.  Ahead of a busy morning of economic reports U.S. futures trade modestly lower but as the data is revealed anything is possible depending on the possible inspiration of the bulls or bears.

Economic Calendar

Earnings Calendar

Notable reports for Thursday include ADBE, JBL, and KR.

News & Technicals’

After two weeks of labor unrest that disrupted trade at 29 West Coast ports, a tentative agreement was reached on Thursday night between the Pacific Maritime Association and the International Longshore and Warehouse Union. The six-year deal covers 22,000 workers who handle about half of the nation’s cargo. The terms of the agreement were not disclosed, but both sides expressed relief and gratitude for the assistance of Acting U.S. Secretary of Labor Julie Su. The port congestion caused by worker slowdowns and stoppages is expected to take several days to clear out.

The war in Ukraine has escalated as Russian mercenaries clashed with the Kremlin over their role and strategy in the conflict. The leader of the Wagner Group, Yevgeny Prigozhin, has refused to sign a contract with the Russian Defense Ministry, which wants more control over the volunteer formations. Meanwhile, Ukraine and its allies are holding a meeting in Brussels to discuss how to bolster Kyiv’s air defenses and artillery against Russian aggression. The meeting comes after Ukraine launched a counteroffensive last week to reclaim some of the territory occupied by Russia. The war has killed at least 10 people and wounded dozens more in Kyiv’s hometown of Kryvyi Rih, where Russian missiles hit civilian buildings.

The Federal Reserve’s decision added uncertainty keeping rates unchanged while raising the terminal rate expectations. The Fed suggested, however, that it might hike rates two more times, as its latest “dot plot” showed a higher fed funds rate target of 5.6%, up from 5.1% in March. Chair Powell said in his remarks that he hoped inflation would start to ease soon, as he saw some signs of a cooling in the labor market. It was a mixed day for stock markets on Wednesday, as the S&P 500 and Nasdaq managed to end the day higher, while the Dow Jones finished lower. Meanwhile, bond yields rose after the Fed meeting, as markets wondered if the Fed would tighten more than expected. The 2-year Treasury yield jumped by 0.10% to 4.68%, almost 1.0% above its lows in mid-May. Today we have a very busy economic calendar filled with possible market-moving reports. Plan for substantial volatility, whipsaws, and big point moves as the traders react to the data.

Trade Wisely,

Doug

The lowest CPI reading in 2 years inspired the bulls and investors cheered pricing the market with an expectation the Fed will pause hoping this is the end of the rate hiking cycle. Today at the 2 PM announcement and the following press conference we will find out if the hawks have left the building or not.  Before that excitement keep in mind we have Morage Apps, PPI, and Petrolem numbers likely adding to the emotional volatility of the day.  Be prepared it could get wild if Powell surprises the market or continues to suggest the rate hike cycle may not be over just yet.

Asian market closed mixed with we slept with the Nikkei hitting fresh new highs and the HSI leading the sellers in the tech-heavy index.  However, European markets trade higher across the board this morning with the FTSE MIB leading the way up 1.38% at the time of this writing this report. With a light day of earnings and a busy day on the economic calendar U.S. futures currently trade mixed but could and will likely change significantly based on the pending data reaction.  Buckle up, emotions are high so plan for significant volatility.

Economic Calendar

Earnings Calendar

The only notable report for Wednesday is LEN.

News & Technicals’

Advanced Micro Devices (AMD) has revealed its new A.I. chip, the MI300X, which is designed to challenge Nvidia’s dominance in the fast-growing artificial intelligence market. The MI300X is AMD’s most advanced graphics processing unit (GPU), the category of chips that are used to build cutting-edge AI programs such as ChatGPT. The MI300X can use up to 192GB of memory, which means it can fit even bigger AI models than other chips. AMD said the MI300X will start shipping to some customers later this year and will be more meaningful in 2024. AMD’s CEO Lisa Su said AI is the company’s “largest and most strategic long-term growth opportunity” and that GPUs are enabling generative AI.

Vodafone and CK Hutchison have agreed to merge their UK mobile businesses, creating the country’s largest mobile operator with more than 27 million subscribers. The deal, which was announced on Wednesday, will give Vodafone a 51% stake and CK Hutchison a 49% stake in the combined group. The new group will be led by Vodafone UK’s current CEO Ahmed Essam and will invest £11 billion over 10 years to build “one of Europe’s most advanced standalone 5G networks”. The merger is expected to face scrutiny from competition regulators, who have previously blocked a similar deal between Three and O2 in 2016.

Investors cheered as the latest inflation data showed a slowdown to 4% in May, the lowest rate in over two years and in line with expectations. The market is priced for the belief that the Fed will keep rates unchanged at today’s rate announcement at 2 PM Eastern. Although Powell is not known for surprising the market, if he should do so and raise rates expect a very disappointed market that may unleash the bears.  Cyclical sectors and small-cap stocks led the gains, while bond yields rose. Asian markets also got a boost from hopes of more stimulus from China. Oil prices bounced back 3% after a sharp drop on Monday.

Trade Wisely,

Doug

The bull run continued on Monday with high hopes the pending CPI number will weaken enough to give the Fed cover to pause rate increases Wednesday afternoon.  Be prepared for a big potential move in the indexes particularly if the number happens to disappoint due to the tremendous anticipation.  Interestingly the VIX rallied yesterday indicating an increase in fear even as the indexes surged higher.  With no notable earnings reports to inspire bulls or bears, all eyes will key off the economic calendar reports.

Asian markets rallied led by Japan surging 1.80% and topping 33.000 at the close.  European markets trade cautiously flat this morning as they wait on the central bank rate decisions.  U.S. futures tick higher this morning as we wait on the results of the consumer price index that is highly anticipated to support at Fed rate pause.

Economic Calendar

Earnings Calendar

There are no notable earnings reports for Tuesday.

News & Technicals’

Investors cheered as stocks rose on Monday amid expectations that the Federal Reserve will pause its aggressive rate hikes at its next meeting on Tuesday. The Fed has raised its key interest rate 10 times since last year to combat inflation, which has soared to its highest level in decades. However, some economists believe that the Fed will signal that it is not done tightening monetary policy and that more rate increases are likely in 2023. The S&P 500 and Nasdaq Composite gained 0.93% and 1.53%, respectively, closing at their highest level in 13 months. The Dow Jones Industrial Average added 189.55 points, or 0.56.

Many are hopeful that the US consumer price index report on Tuesday will reveal a slowdown in inflation that will allow the Fed to skip a rate hike on Wednesday. This would be the first time they do not raise the key rate after 10 straight hikes since March 2022.

The U.K. saw its short-term borrowing costs soar to their highest level since the financial crisis on Tuesday after strong labor data fueled expectations of more interest rate hikes by the Bank of England. The yield on two-year government bonds, which influences mortgage rates, climbed above 4.75%, surpassing the peak reached during the market turmoil triggered by the former government’s “mini-budget” last year. The labor report showed that wages excluding bonuses grew by a record 7.2% in the February-April quarter, while employment hit a record high. The Bank of England is under pressure to raise interest rates further to rein in inflation, which stood at 8.7% in April.

The bull run continued around the world on Monday, with Japan and Europe leading the way, as investors anticipated a break in the Fed’s rate hike cycle. Growth-oriented sectors such as technology, communication services and consumer discretionary outperformed, extending their year-to-date rally. Bond markets were calm, with little movement in interest rates. The 10-year Treasury yield stayed close to 3.75%. The market mood improved as the day went on, as hopes grew that the Fed will skip a rate hike at its meeting on Wednesday.

Trade Wisely,

Doug