Kashkari Says There Is No Hurry to Cut

Markets opened just modestly higher Tuesday. SPY opened 0.18% higher, DIA started 0.19% higher, and QQQ opened up +0.08%.  From there, all three major index ETFs ground sideways the first hour.  At that point DIA started a long, very modest selloff that finally recrossed the opening gap at 2:30 p.m.  From there DIA ground along the prior close level before heading back to the open level during the last hour. Meanwhile, SPY and QQQ both continued sideways until 1:30 p.m.  Then, those two followed DIA but with a bit sharper selloff before grinding sideways along the previous close after 2:30 p.m. until a rally the last 15 minutes took both back up to the opening level.  This action gave us, Doji candles in all three major index ETFs.  SPY and DIA gapped just a bit higher before printing the Doji while QQQ opened flat and printed its own Doji.  All three remain above their T-line (8ema).

On the day, seven of the 10 sectors were in the green with the Consumer Defensive (+1.01%) group leading the market higher.  Meanwhile, Consumer Cyclical (-0.74%) was the weakest sector by half of a percent.  VXX was flat and remains at 12.41 and T2122 pulled back a bit but remains in the overbought territory at 84.80.  At the same time, 10-year bond yields fell again to 4.459% and Oil (WTI) was flat, closing at $78.56 per barrel.  So, again Tuesday, it was an indecisive day across the market with no real strength from either the Bulls or the Bears.  One indicator of the indecision is that the 10 big dog stocks were evenly split between green and red.  However, we should note that the biggest movers among that group were on the red side and also had the heaviest dollar move.  NVDA (-1.72%) traded $39.1 billion in stock and TSLA (-3.76%) traded $13.2 billion in stock.  Meanwhile, AAPL (+0.38%) was the biggest gainer with $13.1 billion of stock traded.

The major economic news scheduled for Tuesday included March Consumer Credit, which came in FAR below expectations at $6.27 billion (compared to a forecasted $14.80 billion and the February value of $15.02 billion).  After the close, API Weekly Crude Stocks showed an inventory build of 0.509 million barrels (versus a forecasted -1.430 million barrels and far below the previous week’s 4.906-million-barrel inventory build). 

In Fed speak news, Minneapolis Fed President Kashkari said the FOMC may need to hold rates steady through all of 2024.  Kashkari said, “(In order to support a rate cut) I would need to see multiple positive inflation readings suggesting that the disinflation process is on track.”  However, on the other side, he did allay some fears by saying “The bar for a rate hike is quite high but it’s not infinite … There is a limit when we say, ‘OK, we need to do more.’ I think it’s much more likely we would just sit here for longer than we expect, or the public expects right now, until we see what effect our monetary policies have.”  

After the close, ANET, AIZ, CRC, CHRD, GMED, GXO, HY, IAC, ICUI, KD, KGC, LYFT, MASI, MTCH, PR, RNG, SU, TOST, TWLO, and WYNN all reported beats on both the revenue and earnings lines.  Meanwhile, AGL, ANDE, ARKO, BIO, BTG, BHF, JKHY, OVV, OXY, and RRR missed on revenue while beating on earnings.  On the other side, AMRK, CPNG, GO, MTW, RYAM, and RIVN beat on revenue while missing on earnings.  However, EA, and MCK missed on both the top and bottom lines.  It is worth noting that AGL lowered its forward guidance while ANET and MASI both raised their guidance.

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In stock news, on Tuesday, a Brazilian paper company (Susano) mad a bid to buy IP for $15 billion. The $42.00 per share offer was given to the IP board verbally and will be submitted in writing soon.  (IP closed at $36.92 on Monday and then at $38.84 after the news Tuesday.)  At the same time, AAPL held an event to announce new iPad models based on the M4 version of their in-house designed ARM processor.  Later, RCL announced it is trying to recruit 10,000 new workers to staff ships and its private destinations this year.  The company says the need to hire so many workers is due to record cruise demand.   At the same time, META announced it has launched tools for AI image generation for advertisers.  This comes after GOOGL announced the same set of tools in February.  Later, PNRA announced it is phasing out its “Charged Sips” line of ultra-caffeinated drinks.  (That line of products is the subject to many lawsuits claiming they caused health issues and have created significant bad PR for the chain.)  Meanwhile, Bloomberg reported that JPM has started its latest round of layoffs at the Vice President and Associate level of its consumer, energy, and healthcare units.

In stock legal and governmental news, on Tuesday, a Spanish startup filed a complaint against MSFT with the Spanish antitrust regulator, related to MSFT’s cloud computing practices.  Later, the US Dept. of Commerce revoked some export licenses for good such as INTC and QCOM chips that were to be shipped to China’s Huawei.  At the same time, Reuters reported that four sources tell it the US has held up the shipment of BA-made munitions to Israel.  (The sales will reportedly eventually go through, but are being delayed based on priorities such as shipment to Ukraine.) Later, LEVI settled its lawsuit which accused an Italian fashion brand of infringing its trademarked pocket tab.  (The terms of the settlement were not disclosed.)  Elsewhere, Chinese company ByteDance filed suit in the US, arguing that the recently-passed law (passed as part of the Ukraine-Israel-Taiwan aide package) is unconstitutional on a number of grounds.  (The law required ByteDance to sell TikTok to a US owner in the next nine months or cease all operations in the US.  TiKTok has 170 million American users according to the company.)

So far this morning, AFRM, BUD, BCO, BAM, CLVT, ELAN, EMR, GFF, LCII, LPX, TIGO, NYT, QRTEA, REYN, SHOP, SUN, and VSH all reported beats on both the revenue and earnings lines.  Meanwhile, ALIT, BR, EPC, HAIN, DINO, INGR, EYE, NFE, NI, and STWD missed on revenue while beating on earnings.  On the other side, TEVA and UBER beat on revenue while missing on earnings.  However, SATS, KMT, MIDD, ODP, PFGC, and RCM missed on both the top and bottom lines.

Overnight, Asian markets were mixed but leaned toward the red side.  Japan (-1.63%), Shenzhen (-1.35%), and Singapore (-1.08%) led the region lower.  In Europe, we see the opposite picture taking shape with only three of 15 bourses in the red at midday.  The CAC (+0.81%), DAX (+0.34%), and FTSE (+0.25%) lead the region higher in early afternoon trade.  In the US, as of 7:30 a.m., Futures are pointing toward a start just on the red side of flat.  The DIA implies a -0.05% open, the SPY is implying a -0.15% open, and the QQQ implies a -0.20% open at this hour.  At the same time, 10-year bonds are back up to 4.488% and Oil (WTI) is down more than a percent to $77.54 per barrel in early trading.

The major economic news scheduled for Wednesday is limited to EIA Weekly Crude Oil Inventories (10:30 a.m.).  The major earnings reports scheduled for before the open on AFRM, BUD, BCO, BR, CLVT, SID, SATS, EPC, ELAN, EMR, FWONK, FOXA, GLP, DINO, IEP, INGR, KMT, LCII, LSXMA, LPX, MIDD, EYE, NEUE, NFE, NYT, NI, ODP, PFGC, RCM, REYN, SHOP, SWX, STWD, SUN, TGNA, TEVA, TM, UBER, VSH, and VST.  Then, after the close, AE, ABNB, AMC, APP, ARM, ATO, CE, CENTA, CENT, CAKE, CCU, COMP, CPAY, CAPL, ET, EXAS, FG, FLNC, FNF, FWRD, HLI, HUBS, CART, JXN, MFC, MATV, MMS, MKSI, MRC, NWSA, NTR, PAAS, QDEL, RGLD, SBGI, SSRM, STN, STE, SNEX, RUN, TKO, MODG, TSE, TTEC, VSTO, WTS, and WES report. 

In economic news later this week, on Thursday, we get Weekly Initial Jobless Claims, Weekly Continuing Jobless Claims, and the Fed Balance Sheet.  Finally, on Friday, Michigan Consumer Sentiment, Michigan Consumer Expectations, Michigan 1-Year Inflation Expectations, Michigan 5-Year Inflation Expectations, the WASDE report, and April Federal Budget Balance as well as Fed members Bowman and Vice Chair Barr speak.

In terms of earnings reports later this week, on Thursday, we hear from ADV, ALE, AZUL, BERY, CSIQ, CRL, COMM, CEG, EDR, EPAM, EVRG, HBI, HGV, H, ICL, IHRT, IBP, KELYA, NXST, NOMD, PZZA, PLTK, ACDC, RPRX, RBLX, SBH, SN, SOLV, SPB, TPR, TEF, TIXT, VTNR, VTRS, WBD, WMG, AKAM, COLD, AMN, BAP, DBX, SSP, EVH, FIHL, GEN, G, HRB, IAG, IOSP, MTD, PBA, RXT, RBA, and SLF.  Finally, on Friday, AQN, AMCX, CLMT, CPG, CRH, ENB, HMC, and DNOW report.

In miscellaneous news, a plague of leafhopper insects has infected Argentinian corn crops.  This insect, has the ability to reduce thousands of acres of corn crop to zero yield.  (While the US is the largest producer of corn, Argentina is number four behind China and Brazil.  A failure of the Argentine crop would cause significant impact on global corn prices.)   At the moment, Argentina is forecasting a 17% reduction in its corn production.  Elsewhere, US spot electricity and natural gas prices turned negative Tuesday in TX, CA, and AZ.  (Ample Western hydropower, moderate weather, and limited storage capacity were forcing many LNG producers to flare (burn off) excess gas Tuesday, rather than slow/stop well production.)

In other news, Hamas and Israeli negotiators resumed ceasefire negotiations Tuesday.  However, Israel began the new session by giving a Friday deadline for a deal, saying it would halt negotiations and initiate its “real Rafah operation” if a deal has not been agreed by then.  (That distinction was needed because IDF ground forces attacked and captured the Gaza border crossing between Rafah and Egypt.  That crossing is where 75% of Gaza aid passed prior to the war.  That crossing is now completely shut down again as famine looms in that city and the whole Gaza strip.)  It’s hard to predict how this will impact oil markets, with a return to talks a soothing sign while threats and continuing Israeli attacks not so soothing.

With that background, it looks as if traders are on the bearish side this morning. The QQQ in particular shows some follow through with the larger black candle being printed in the premarket. However, the two large-cap index ETFs opened the premarket flat and are printing more “indecisive candles” since that point. All three remain above their T-line (8ema). So, the short-term trend is now bullish again. Meanwhile, the mid-term remains sideways (choppy). The longer-term market remains Bullish as all three major index ETFs have returned within a few percent of all-time highs. Overall, the character of the market is gappy, choppy, and volatile. In terms of extension, none of the three major index ETFs are “too far” extended above their T-line, but the QQQ is starting to push that level. The T2122 indicator remains in its overbought area. So, while both sides still have room to run if they can gain the momentum to do so, the Bears have more slack to play with. In terms of those 10 big dog tickers, eight of the 10 are in the red this morning putting a considerable drag on the QQQ and SPY. Again, keep in mind that this is not a heavy news week but we do have a lot of earnings reports. Perhaps more importantly, there are several Fed speakers and undoubtedly a few others will also pop off. Any of those statements could swing markets, especially as Bulls are now dreaming of Fed rate cuts again.

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 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 gains are 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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