• NVDA bucks the trend and rises by 9.3%.

  • Stocks and Bonds get Whacked as reality becomes real.

  • It’s a long weekend – Do not make an emotional decision.

  • Try the Baby Back Ribs.

Happy Memorial Day Weekend – Thank you to all our veterans that fight for our freedom.  Make sure to thank HUG a veteran for their service. 

Now, if you know me, you know that I am committed to our veterans (specifically for my own 911 experience) and so my wife and I work hard to support them in their search for quality mental health care. 

And if you know me, you know I'm passionate about The Headstrong Project (Getheadstrong.org) and its mission to provide our nation’s service members and veterans with no-cost, easy-to-access, and confidential mental health treatment. Headstrong's lifesaving work wouldn’t be possible without partners like Carlisle Companies Incorporated. This month, Carlisle employees are participating in a fundraising campaign to get active and raise critical resources for Headstrong.

So, I guess it was not a “Day of Wine and Roses’…. Stocks got whacked…. Except of course – NVDA which gained $89 pts or +9.3%, to end the day at $1038!   But let’s remember – NVDA is not the market, we may like it to be, but it is not.  Although, I would say, if you owned NVDA it may have felt like ‘wine and roses’….and it did certainly help ‘cushion the blow’. 

There are many versions of this 1961 classic – - Andy Williams, Shirley Bassey, Perrry Como, even Tony Bennett but I prefer the Frankie version…so enjoy.

So stocks and bonds fell as the latest data keeps lining up on the side of NO rate cuts while leaving open the possibility of a rate HIKE, as much as they try to poo poo the idea,  After the release of the mins on Wednesday and then after yesterday’s economic data – the tone has definitely changed (at least for now!) 

The Dow lost 605 pts or 1.5%, the S&P lost 40 pts or 0.7%, the Nasdaq ‘only’ gave up 65 pts or 0.4%, the Russell gave up 33 pts or 1.6%, the Transports lost 185 pts or 1.2%, while the Equal Weight S&P lost 97 pts or 1.4%. 

Recall what we discussed yesterday prior to the release of the Manufacturing and Services PMI’s - We asked – What would they show?  Both were expected to hug the neutral line, but the risk was to the upside, not the downside….and BAM…Manufacturing PMI – which was expected to be in contraction mode, came in at 50.9 – expansion mode.  Services PMI came in ‘hot’….it was expected to be 51.4 – (already in expansion mode) and it came in at a whopping 54.8 – deeper into expansion mode (both advances a result of ‘input prices’ which continue to rise sharply) – but you’d say – isn’t’ that a good thing?  Well, it would have been had we been in a deep dark recession….but the issue is we were not…And all that did was reiterate the difficult position that the FED is in…..Again, how can they consider cutting rates when the economy continues to run HOT?  (Answer:  They cannot).

Remember – the US is a 75% services economy, so anything that suggests ‘services’ is on fire – flies in the face of a slowing economy, and all that does is confirm what we already know….Hold onto your hat….Do not expect any rate cut anytime in 2024 – just not happening….  Can we stop now?  Apparently not, because the ‘Swaps’ team is now pricing in a full 25 bps rate cut in December…. OK – at least they got off of the June, July, September narrative.  So, let’s go with that. 

And yesterday, to clarify the ‘services’ point – I pointed out what CNBC was running with - Hospitality Services (think household help) in Palm Beach and they are on fire…. Household help now commands salaries of $150k - $200k/yr. along with benefits – 401k plans, paid vacations, maternity and paternity leave etc.… But these are not just come in and ‘clean the house’ roles…. Oh no, they are more sophisticated than that – Remember, it is Palm Beach – home to Mar-A-Lago, Bon Jovi, Sly Stallone, Timmy Hilfiger and more…. You can find them on Worth Avenue, or at Café Balou, the Brazilian Court or out at the Polo grounds in Wellington.

The VIX surged by 8% from low to high before ending the day +4% ...recall what we discussed, it was trading at levels suggesting complete complacency (nothing to fear) ….and all we needed was just one unexpected headline to disrupt the place…and we got a couple!  On Wednesday, we found out that there are ‘many’ members of the FOMC that are more concerned about rising inflation than not, we found out that Services PMI is hotter than not, we found out that New Home Sales fell by 4.7% and this is in addition to the hotter PPI report from two weeks ago, that suggests next month’s CPI report is going to be hot as well…..

Every sector of the 11 S&P sectors came under pressure – 8 of them down over 1%….Real estate – XLRE getting hit the worst – down 2.1%, Utilities – XLU – 1.7%, Consumer Discretionary – XLY  - 1.6%, Financials – XLF – 1.4%, Consumer Staples – 1.2%, Industrials – XLI – 1.2%, Communications – XLC -1.1%, Healthcare – XLV – 1.1%,  Energy – XLE – 0.9%, Basic Materials – XLB – 0.9% and Tech – XLK down only 0.8% (again you can thank NVDA).

Winners?  Of course, there we some and you know who they were – the Contra Trades…. DOG + 1.6%, SH + 0.8%, PSQ 0.5%, SPXS + 2.5%, VIXY + 1.3%

Bonds came under pressure as well…the TLT – 0.6% and the TLH – 0.5% while the AGG was down 0.3%.  The 2 yr. bond yield rose to 4.92%, the 10 yr. bond yield rose to 4.46% - rates that may appear high now but may not in 3 months.  Remember – Janet has to continue to bring more supply to the markets in order to pay for all of the spending that the Biden’s and Congress are doing….and more supply will result in lower bond prices and higher bond yields.

Oil came under pressure again after the latest eco data suggested ‘sticky inflation’ and higher rates.  WTI settled at $77 – levels last seen in March.  It is now down 11% off the April high and down 4% this week – this morning it is down 50 cts at $76.50….But it is the start of the summer driving season….(Memorial Day) and the EIA tells us that gasoline demand is at its highest level in over 8 months….Analysts tell us that we (Americans) account for 1/10th of global oil demand, so expect to hear a lot about how much driving we are doing…Next week brings us OPEC+’s next meeting and you can bet that $76 oil is not what the King wants….so watch for new threats to supply (think further production cuts).  

We have now pierced trendline support at $77.53 – which I pointed out earlier this week would mean that a move down to the $75.50 ish level would not be a surprise at all.   For now, I think it holds here as speculation builds around what OPEC+ will do.

Gold is another asset we discuss daily…. Yesterday – it tested trendline support and appears to have held (something I thought was going to happen) …. This takes gold down 5% on the week, back to early May levels. The pressure driven mostly by the latest narrative of higher for longer.  But do not discount the power of foreign buying…the Chinese remain a major source of demand (along with others) and that should help keep further losses limited for now…. I think we remain in the $2360/$2400 trading range.

US futures are trying to rebound after the beating yesterday…. Dow futures + 46, S&P’s up 11, Nasdaq +30 and the Russell is up 8.  Now eco data today includes: Durable Goods Orders- expected to be down 0.8%, Ex transports of + 0.1%, Cap Goods Ordered +0.1%, Cap Goods Shipped +0.1%....and of course the U of Mich Sentiment Survey….But remember – it is a long weekend and the start of summer….volumes will be anemic which means that moves can be exaggerated….so don’t stress – in fact – go enjoy yourself and find some wine and roses….

The S&P closed at 5267, down 40 pts - making a lot of retail investors a bit nervous – only to ask – what now?  To which I would answer – do not make an emotional decision…. much of what happened is just a reckoning of the data….data that has been telling us all along that inflation remains an issue and the idea of multiple rate cuts was misaligned with reality.  We are still close to the top, so yesterday’s 1+% losses do not suggest disaster at all.  Look – what the market has shown you is that 5.25% rates are not usurious, nor have they been a detriment to equity performance.  We can have a healthy stock market and a healthy bond market with rates here.   So, the higher for longer narrative is not what keeps me up at night, it’s the threat of ‘higher’ rates from here due to sticky inflation that keeps me up at night…so let’s see how the brain trust in DC handles that!

Memorial day BBQ, try the baby back ribs

It’s easy…Hamburgers, Hot Dogs, Baby Back Ribs, Cole Slaw, Potato Salad, Watermelon and of course Apple Pie and Ice Cream!

Baby Back Ribs

 2 lbs. of baby back ribs and Sweet Baby Ray’s BBQ Sauce.

Preheat your oven to 375 degrees.

Bring a large pot of slightly salted water to a rolling boil - drop the ribs in and par boil for 2 mins after the water begins to re-boil.  Remove and set aside in a large roasting pan.

Season with s&p – Cover tightly and place in the oven for 1 hr.  Remove and then add the BBQ sauce – making sure to coat the ribs all over.  Now place back in the oven – making sure to cover tightly once again…. cook for an add’l 30 mins. 

Now you can finish on the grill or broil them under the broiler.  Either way – you can’t go wrong…. They should fall right off the bone… Enjoy.

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