[Chart courtesy of MarketWatch.com]

1. Moving the markets

The Nasdaq powered to a new high today, and briefly crossed above its 17k milestone, thanks to Nvidia’s continued upward momentum. The tech-heavy index led the major indexes in a sluggish start to the last trading week of May.

All three major indexes look to close out a strong month after having scored new all-times at various points, despite the Dow pulling back today. Traders interpreted inflation data as “soft,” relentlessly clinging to hope that the Fed’s potential rate cuts might become reality sooner rather than later. Better than expected earnings, thanks to a low bar, lifted bullish sentiment.

On the other hand, some strong economic data points and fresh concerns about consumers pulling back on spending has created a new wildcard, which likely has reigned in optimism for the direction of interest rates. Fed mouthpiece Kashkari did not help matters by adding that he wants to see “many more months” of data pointing to easing inflation before supporting a cut.

Nvidia owned all bullish sentiment as the stock added over 7% for the session and climbed to within $100 billion of Apple’s market cap.

However, other asset classes moved higher as well. Oil prices jumped over 3% to close above $80, gold shot back above $2,350 and Bitcoin touched its $70.5k level before falling back.

Bond yields headed higher, as some macro data showed signs of improvement, such as home prices and consumer confidence, but inflation expectations were rising. The dollar advanced and followed the direction of yields.

The comparison of Nvidia to Cisco Systems seems to have run its course, as this chart shows.

However, the question is: Can history still repeat itself but just from a higher level?

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NASDAQ LEADS MARKET REBOUND AS TECH STOCKS RALLY DESPITE RATE CUT HOPES DIMMING

[Chart courtesy of MarketWatch.com]

1. Moving the markets

The major indexes inched higher trying to recover from yesterday’s drubbing, the worst since March 2023. The Nasdaq led the rebound, and the Dow lagged.

Despite hopes being dashed that the Fed may cut rates this summer, enthusiasm for Nvidia and other tech companies lifted the major indexes with the Nasdaq sprinting ahead by over 1%.

The latest earnings reports were mixed with Workday falling more than 10%, while Intuit surrendered over 8% due to weak guidance. Deckers Outdoor bucked the trend with an 11% surge.

On the economic side, demand for Durable Goods surprised to the upside, as orders for long-lasting items like appliances, cars and airplanes rose 0.7% for the month, which was better than the consensus estimate for a 1% drop. Despite new orders being flat, these robust data points diminished traders’ hopes for a rate cut.

Services and Manufacturing data also surpassed forecasts from economists, while weekly jobless claims signaled the weakness in the labor market may have halted. Again, none of these numbers will affect the Fed’s current position of “higher for longer.”

As ZH pointed out, after six straight weeks of ‘weakness’, US Macro Surprise data surged higher this week (good news) — it’s biggest positive weekly shift since January. To no surprise, this sent rate cut expectations tumbling.

The MAG7 stocks recovered from yesterday’s sell off and rallied for the fifth straight week to a new record high, thereby surpassing the comparison to Cisco’s historical performance.

Bond yields climbed to end the week higher, with the 2-year storming towards its 5% level. That was its biggest weekly yield increase in almost 2 months.

The dollar rode the roller coaster but ended higher after last week’s losses. That pulled gold off its lofty level, but the precious metal easily defended its $2k marker.

Bitcoin recovered from yesterday’s drop and bounced back to $69k, as oil prices ended lower on the week and losing its $78 support zone.

A tip of the hat goes to ZH for pointing out another decoupling, namely between US Reserve balances and Market Capitalization. It’s another alligator snout that eventually will snap shut.   

If history is any indication, market capitalization will take a hit—and that would mean lower equity prices.  

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[Chart courtesy of MarketWatch.com]

1. Moving the markets

The Nasdaq jumped to a new record early on, as traders dug into the latest quarterly results from tech darling Nvidia, which smashed expectations, as its momentum does not seem to slow. Consequently, the stock surged over 10% sending it shares above $1,000.

AI is the latest theme, and companies are spending on this technology with Nvidia supplying the infrastructure on the future downstream economy. The excitement about this sector is not waning, and the future looks positive for this part of the economy.

While traders had hoped that Nvidia’s blow-out earnings report would be a moment of truth and lift all markets, that did not happen, as the adage “buy the rumor, sell the fact” pulled the broad indexes lower. The markets plunged, with the Dow faring the worst, puking 600 some points. So much for all the hype.

Keeping underlying bullish hopes at bay were comments from JPMorgan’s CEO, Jamie Dimon, who sang from my hymn sheet by saying that “the worst outcome for the U.S. economy will be a ‘stagflation’ scenario, where inflation continues to rise, but growth slows amid high unemployment.”

He also added that interest rates could still go up “a little bit.”

Boeing got hit hard, the short squeeze ran out of ammo, and the MAG7 stocks gave back most of their early “rip.” Bond yields were higher across all maturities, which catapulted the dollar higher but slammed gold again.

Bitcoin touched its $70k level and was abandoned. Oil prices rode the roller coaster but only closed lower by a moderate margin.

Looking at the big picture, it’s clear that we are stuck in a stagflation environment, which will likely not motivate the Fed into cutting rates.

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[Chart courtesy of MarketWatch.com]

1. Moving the markets

Stocks traded near the flatline for most of the day, as investors looked ahead to the widely anticipated release of Nvidia’s latest earnings report due out after the close.

However, the released minutes from the May Fed meeting proved to be more than traders were able to handle. They not only admitted a lack of progress in recent months towards lower inflation, but also had a variety of members discussing a willingness to hike rates, should inflation refuse to move lower towards their stated 2% goal.

Ouch! That took traders and algos by surprise and south we went, with the major indexes quickly dropping in the red.

Nvidia’s earnings announcement has become one of the most important events on traders’ datebook, as the AI spectrum has been the main spark of this rally.  

Additionally, Wall Street’s relentless optimism for rate cuts by the Fed sometime this year seems to offer assurance that the markets could maintain their elevated levels even in case Nvidia’s earnings disappoint.

Sure, the Fed could very well drop rates a notch later this year, but that might be more for political reasons than economic ones. On the other hand, the economy keeps sliding with today’s unexpected drop in existing home sales being indicative of a cooling housing market.

Looking at the big picture, I see inflation data continue to surprise to the upside, while economic growth surprises to the downside, a phenomenon we’ve been watching for a while.

Today’s sell off took the MAG7 stocks down as well, with bond yields presenting a mixed picture, as rate cut expectations dropped. The dollar gained, but gold got spanked with prices retreating to mid-month levels.   

Bitcoin edged higher by a tad, hovering around its $70k level all day, as oil prices retreated toward their $77 support point.  

Will Nvidia’s earnings be able shake off the hawkish tone of today’s session?

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