After a small gap lower to get the session started (gapping down 0.23% in the SPY, down 0.33% in the DIA, and down just 0.07% in the QQQ at the open) the Bulls had another day in charge on Friday. From that open, with the sole exception of a 30-minute pullback at 10:30, all three major indices saw a slow, steady rally all day long and went out on their highs. This took the SPY and DIA to just above (still in a retest) the mid-April highs and left the QQQ a new high not seen since August 2022. This action gave us large, white Marubozu (Shaved Head) candles in the SPY and DIA. The QQQ had a small lower wick and not quite as large candle, but still a strong showing for the Bulls.
On the day, eight of the 10 sectors were in the green with Energy (+1.79%) by far out in front of the rest and Communications Services (-0.24%) lagging behind the other sectors. At the same time, the SPY gained 0.85%, DIA gained 0.84%, and QQQ gained 0.69%. VXX fell 4% to 37.82 and T2122 climbed up to the top of the mid-range, just outside of the overbought territory at 78.77. 10-year bond yields fell to 3.433% while Oil (WTI) gain 2.50% to $76.63 per barrel. So, slowing inflation and generally good earnings trumped everything else on the last trading day of April despite fears for the future of FRC (a regional bank). This all happened on average volume in all three major indices.
In economic news, March PCE Price Index (the Fed’s preferred measure of inflation) showed a slower-than-expected increase in prices at +0.1% month-on-month (compared to a forecast of +0.3% and the February reading of +0.3%). On an annualized basis, that brought the reading down to 4.2% from a 5.0% reading just one month earlier and a 5.3% reading at the end of February. While you could say the glass is half empty by noting inflation is still far above 2%, it is undeniable that there has been a strong and steady decline in this inflation metric since July 2022. And it’s quite likely that the trend is what all but the Fed ultra-hawks will latch onto. However, in other inflation-relation economic news, the Q1 Employment Cost Index came in above expectation at 1.2% (versus a forecast and previous value of 1.1%). (This may be a preliminary reading, it was not marked and I am unsure.) Later in the day, Chicago PMI came in above the anticipated level at 48.6 (compared to a forecast of 43.5 and the March reading of 43.8). Finally, the Michigan Consumer Sentiment remained where it was expected at 63.5 (versus the forecast and prior value which were both also 63.5).
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In stock news, on Friday, MBGAF (Daimler) announced a $650 million joint venture with NEE and BLK to develop and operate a nationwide network of public charging stations and hydrogen fueling stations in the US. Elsewhere, the US Dept. of Defense awarded a $7.8 billion contract modification to LMT for building 126 F-35 aircraft. In the oil business, the big names are rolling in cash with XOM having $32.6 billion on hand and CVX having more than $15 billion of cash. The two differ on what to do, as the CEO of XOM said Friday he is happy to hold a large surplus for the next downturn although he is not averse to a particularly good acquisition. On the other side, the CEO of CVX said he did not intend to sit on $15 billion in cash because it is economically inefficient. Wall Street is pushing both to again increase buybacks and dividends rather than spend cash on acquisitions.
In stock legal and regulatory news, an Inspector General report released Friday said that FAA Engineers recommended the grounding of 737 MAX planes (BA’s best-selling jet at the time) very soon after the second major crash in March 2019. However, FAA officials in Washington delayed the grounding despite analysis that told them there was a 25% chance of another crash within 60 days. The grounding was eventually forced and lasted 20 months. On Saturday, the Wall Street Journal reported US regulators had asked big banks for their “best and final bid” to acquire FRC. The report said that JPM and PNC have expressed interest and BAC and a few others are also considering making a bid. Bids are due Sunday and immediate action is expected. So, by the time this blog comes out, the FDIC seizure, receivership, and transfer of ownership may well have already happened. Meanwhile, the US FDA voted to allow the restricted use of an experimental prostate cancer drug from AZN. Elsewhere, ENR and WMT were sued by consumers and other retailers in three proposed class action lawsuits. The suits allege the two companies conspired to raise disposable battery prices and keep WMT as the cheapest battery offering. (If any retailer offered a lower price than WMT, the company would be cut off from ENR battery supply.) Finally, on Friday, the state of CA approved new rules that will require all new medium and heavy-duty trucks in the state to be zero emission in 2036. The rules also require existing fleets of semis, buses, garbage trucks, government fleets, etc. to be transitioned by 2039.
In banking news, as expected, late Sunday the FDIC seized FRC and then immediately sold the company to JPM. JPM beat out bids from PNC and CFG (BAC and USB were invited but did not bid). The process will cost the FDIC $13 billion (compared to $20 billion from the SIVB failure) and JPM has paid $10.6 billion. In the purchase, JPM acquired $92 billion in deposits, is taking on $173 billion in loans, and about $30 billion in securities. JPM also gains 84 branches (which will be open today).
Overnight, Asian markets were mostly in the green. Shanghai (+1.14%), Shenzhen (+1.09%), and Taiwan (+1.09%) led the gainers. Meanwhile, in Europe, we see a similar picture taking shape at midday. Six of the bourses are in the red while nine are in the green. The DAX (+0.77%), CAC (+0.10%), and FTSE (+0.50%) are leading the region higher in early afternoon trade. In the US, as of 7:30 am, Futures are pointing toward a flat start to the day. The DIA implies a +0.01% open, the SPY is implying a -0.02% open, and the QQQ implies a -0.05% open at this hour. Meanwhile, 10-year bond yields at up to 3.458% and Oil (WTI) is down 2% to $75.25/barrel in early trading.
The major economic news events scheduled for Monday are limited to April Mfg. PMI (9:45 am) and April ISM Manufacturing PMI (10 am). Major earnings reports scheduled for the day include AMG, CHKP, CAN, BEN, GPN, KBR, NCLH, ON, PK, and WEC before the open. Then, after the close, AMKR, ANET, CAR, CF, CNO, CYH, CVI, FANG, RE, FLS, FMC, HOLX, INVH, KMT, LEG, MGM, NXPI, OGS, RYI, SBAC, SCI, SON, SFM, SYK, SGRY, TEX, RIG, VRTX, VIVI, and WWD report.
In economic news later this week, on Tuesday we get March Factory Orders, March JOLTs Job Openings, and API Weekly Crude Oil Stocks. Then Wednesday, the ADP Nonfarm Employment Change, Services PMI, April ISM Non-Mfg. PMI, EIA Crude Oil Inventories, FOMC Rate Decision, FOMC Statement, and Fed Chair Press Conference all happen. Thursday, we get March Imports, March Exports, March Trade Balance, Weekly Initial Jobless Claims, Preliminary Q1 Nonfarm Productivity, Preliminary Q1 Unit Labor Cost, the Fed Balance Sheet, and Bank Reserves with the Federal Reserve. Finally, on Friday, April Average Hourly Earnings, April Nonfarm Payrolls, April Private Nonfarm Payrolls, April Participation Rate, and the April Unemployment Rate.
In terms of earnings reports later this week, on Tuesday, we hear from ADT, AER, AGCO, ARLP, ABC, AME, BP, BR, CX, CQP, LNG, CIGI, CEIX, CEQP, CMI, DORM, DD, ETN, ECL, EPD, ESAB, EXPD, FELE, IT, GVA, GPK, HWM, HSBC, IDXX, IHRT, ITW, INCY, NSIT, LDOS, MDC, MPC, MAR, TAP, MLPX, MD, PFE, PEG, QSR, SEE, SUN, SYY, TROW, TRI, TRN, UBER, ZBRA, ZBH, AMD, AMCR, AFG, ANDE, ASH, AIZ, AXTA, BXC, BFAM, CZR, CRC, CWH, CHK, CLW, CLX, EIX, ET, ENLC, EQX, EXPI, F, THG, HLF, JKHYLFUS, LUMN, MTW, MTCH, MCY, MUSA, OKE, PGR, PRU, RNR, SPG, SBUX, SMCI, UNM, VOYA, WELL, WU, and YUM. Then Wednesday, ADNT, ALGT, AVNT, AVA, GOLD, BDC, BGCP, EAT, BIP, BLDR, BG, CDW, CHEF, CLH, SID, CVS, XRAY, DBD, DRVN, EMR, EL, EEFT, EXC, FTS, GRMN, GNRC, GFF, HBI, HZNP, INGR, JHG, KHC, LPX, MUR, NI, PSN, PSX, RXO, SMG, SBGI, SITE, SR, SPR, STLA, TKR, TT, TRMB, UTHR, VRSK, YUM, ALB, ALL, ATUS, AMED, ANSS, HOUS, APA, ATO, AVT, EQH, BHE, BKH, CPE, CENT, CENTA, CDAY, CHRD, CIVI, COKE, CTSH, CODI, CTVA, CCRN, CW, NVST, EQIX, ETSY, FG, FLT, FNF, ULCC, GIL, GL, HST, IR, IOSP, MRO, VAC, MMS, MELI, MET, MKSI, MOS, NFG, OPAD, PARR, PDCE, PSA, QGEN, QRVO, QCOM, QDEL, O, REZI, SIGI, SEDG, RUN, TWI, TTEC, TTMI, UGI, VSTO, WERN, WES, WMB, XPO, YELL, and Z report. On Thursday, we hear from GOLF, ATI, AEP, BUD, APG, APTV, ARNC, ARW, BALL, BHC, BCE, BDX, BERY, BWA, BV, BRKR, CAH, CG, COMM, COP, CEG, DLX, DNB, EQNR, ES, RACE, FOCS, GTES, GPRE, DINO, HII, H, IBP, ICE, IRM, ITT, JLL, K, KTB, MMP, MLM, MDU, MRNA, MODV, NFE, NJR, NVO, DNOW, NRG, OPCH, OGN, PZZA, PARA, PH, PTON, PENN, PCG, PNW, PLTK, PPL, PRMW, PRVA, PWR, RCM, REGN, RCL, SABR, SBH, SRE, SHEL, FOUR, SWK, STWD, TRGP, TFX, TU, BLD, UPBD, VNT, W, WLK, WRK, XYL, ZTS, ATSG, LNT, AIG, COLD, AMN, AAPL, TEAM, BGS, BECN, BIO, SQ, BCC, BKNG, CNQ, CVNA, ED, CTRA, CWK, DASH, DKNG, DBX, ERJ, EOG, EXPE, FND, FTNT, GDDY, GT, LYV, LYFT, MTZ, MATX, MTD, MCHP, MNST, MSI, NCR, ZEUS, OTEX, OPEN, OEC, CNXN, PBA, POST, KWR, RRX, RGA, RKT, SEM, SHOP, TDS, TXRH, TSE, TPC, and USM. Finally, on Friday, AES, AMC, AMCX, AEE, AXL, AMRX, BBU, BEPC, BEP, CLMT, CI, CNK, CNHI, D, ENB, EPAM, EVRG, FLR, FYBR, GLP, GTN, HUN, IEP, JCI, LSXMK, LSXMA, MGA, NMRK, OMI, PBF, PAA, PAGP, QRTEA, WBD and BAP report.
So far this morning, WEC, GPN, KBR, CHKP, NCLH, PK, SOFI, L, and LKNCY all reported beats to both the revenue and earnings lines. Meanwhile, AMG missed on revenue while beating on earnings. Unfortunately, CAN missed on both the top and bottom lines. It is worth noting that GPN raised its forward guidance.
With that background, it looks like the market is looking to open just on the red side of flat. All three major indices are above their 3ema, T-line (8ema), and 17ema…all of which are also trending higher. SPY and DIA are dealing with a resistance level right near the Friday close. However, immediate resistance for QQQ is less than obvious. Over-extension is not yet a problem in any of the major indices. Moreover, with the Fed decision on its way Wednesday and a ton of earnings this week, it is quite possible that a good part of the next five days will be in “wait and see” mode. The Fedwatch tool tells us that confidence in a 0.25% rate hike by the Fed remains high at an 86+% probability. The other 14% probability is for “no hike.” Beyond next week, futures currently see little (28% on the largest probability month) chance of an additional increase this year and most are actually still 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.)
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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