[Chart courtesy of MarketWatch.com]

1. Moving the markets

The S&P 500 and Nasdaq kept inching higher with traders trying to figure out the true meaning behind Powell’s prepared remarks. He opined that keeping interest rates elevated for too long could risk further economic growth, which Wall Street took as a hint that a less restrictive policy might be on the horizon.

On the other hand, nothing the Fed head ever says is clear, as he followed up with comments that “reducing policy restraint too late or too little could unduly weaken economic activity and employment,” and “more good data would strengthen our confidence that inflation is moving toward 2 percent.”

For sure, this was good enough to keep the bullish sentiment going, so the major indexes, except for the Dow, kept the rally alive, although the gains were modest. Again, it’s worth noting that the current upswing is not broad based and has been predominantly driven by the tech sector.

Powell will continue his testimony before Congress on Wednesday ahead of the release of the CPI and PPI inflation data. I am convinced that he will not send any signals as to the possible timing of this much desired and talked about potential rate cut.

Bond yields went nowhere, but Bitcoin found some footing and surged back above $58k. The dollar remained in its recent narrow trading range, as gold followed suit but eked out a green close, while crude oil not only lost its upward momentum but also its $82 price level.   

I expect tomorrow to be another calm trading day, because traders are all focused on Powell’s next talk and the release of the CPI number on Thursday.  

[Chart courtesy of MarketWatch.com]

1. Moving the markets

The major indexes inched higher this morning with the S&P 500 rising to a new record, after having advanced for its 4^th week out of the last five. This move was supported by hopes that allegedly easing inflation in combination with a weakening economy could cause the Fed to cut interest rates. In the end, a sluggish session did not create much activity.

Traders are now eyeing the June CPI, which is due out on Thursday. That is followed by the PPI on Friday. As usual, the algos will primarily jump on the headline numbers and drive the indexes either up or down. Still, optimism prevails that a weaker figure will show improvement so that current bullish sentiment can be sustained.

Last Friday’s labor data showed an increase in non-farm payrolls of 206k and an uptick in the unemployment rate to 4.1% vs. expectations of 4.0%. Looking under the hood, it turned out that the past two months of data were revised and did not show any meaningful job gains. I expect the same to happen next month when it’s revision time again. Go figure…

The most shorted stocks provided chaotic trading, during which we saw an early squeeze, which lost steam as the session wore on. The MAG 7 stocks trod water, as bond yields were stuck in a tight trading range.  

The dollar was subdued, while crude oil lost its $83 level again. Bitcoin rode the rollercoaster all weekend and gave new meaning to the words dump, pump and dump. Gold’s Friday ramp ran into overhead resistance with the precious metal losing about 1%.

It was a session mired in uncertainty, but the upcoming inflation numbers will surely light some fires.  

[Chart courtesy of MarketWatch.com]

1. Moving the markets

The markets opened mixed, as the latest stats showed a weakening labor market ahead of Friday’s eagerly expected payroll report. ADP’s data confirmed less private payroll growth than hoped for in June, while at the same time weekly jobless claims numbers were higher than anticipated.

To me, that is no surprise, since almost daily I am hearing of mass layoffs around the country. Today’s session was a shortened one with the markets closing at 1 pm ET. Afterwards, traders still will look at the minutes from the Fed’s June committee meeting.

Tesla continued its march higher by rising another 3% after a better-than-expected delivery report. That helped to maintain a bullish stance, and the major indexes took off. More collapsing “hard” and “soft” data supported the viewpoint that the Fed is getting closer to loosening monetary policy.

As a result, bad news was good news for the markets with the US macro surprise index tanking and closing at its weakest since December 2015, which sent rate-cut expectations soaring. The S&P 500 and the Nasdaq followed suit, while the Dow ended unchanged.

The MAG7 stocks continued the upward swing, a move that was supported by Nvidia, thanks in part to sinking bond yields. Lower yields spelled trouble for the dollar, but it helped gold spike to its resistance level, as the precious metal gained 1.3%.

Bitcoin lost its mojo but found support at its $60k level, while oil prices rode the roller coaster but closed 1% higher.

It’s now obvious that jobless claims are rising as the economy is rolling over. That will negatively affect future corporate earnings.  

Why?

Because higher unemployment means lower demand for products and services, which in turn may lead to more layoffs, which in the end will decrease stock values.

On a personal note, I will be out of town for a few days but will be back for Monday’s market commentary.

Happy 4^th of July!

[Chart courtesy of MarketWatch.com]

1. Moving the markets

The markets were in limbo this morning after Fed head Powell’s comments that progress on inflation has been made, but that he’s not ready to cut rates yet. That caused the indexes to vacillate with traders being unsure what to make of those remarks.

He then added that “we want to be more confident that inflation is moving sustainably down toward 2%, before we start the process of loosening policy.” Bond yields eased a bit, and stocks were pulled in different directions.

Eventually, the major indexes found a base from which to start a rally, as traders decided to interpret Powell’s cautionary words as good news for the markets—and up we went without looking back.

Giving an assist was an announcement that government job openings suddenly surged, while regular jobs were a tad better than expected, which helped send rate-cut expectations higher.

Tesla stock had great day by being up almost 10% on beating delivery expectations. I find that puzzling after reports pointing out that almost half of all EV owners would switch back to gasoline powered vehicles.

The Mag7 stocks rocketed higher based on Tesla news, also helped by sinking bond yields, which pulled the dollar off its lofty level.

Gold wandered sideways, and crude oil touched a new 2-month high before losing momentum into the close. Bitcoin’s attempt to recover its $64k level failed, and the coin closed just below $62k.

As ZH pointed out, macroeconomic surprises happen almost daily, but now they have spread around the world and broken into negative territory.    

Does that mean the ball is now in the Fed’s court?

[Chart courtesy of MarketWatch.com]

1. Moving the markets

A choppy opening marked the first day of trading in July. Despite tech stocks edging higher there seemed to be some rotation out of that sector, as Nvidia slipped some 3% and leading other compatriots like AMD and Broadcom lower.

While some traders might dismiss the AI development as just another temporary mania, I think it is of great benefit for companies to increase productivity and utilize technologies in ways never thought of before. It will likely also start new industries and discoveries as AI and new more powerful chips combine forces to push computer science to a whole new level.

On the economic side, we learned that manufacturing declined in June despite expectations for some improvement. As ZH pointed out, both hard and soft data disappointed with especially the former diving sharply. As a result, the Fed’s GDPNOW forecast for Q2 GDP dropped to 1.7% from 4.3% a month ago. Ouch!

Bond yields rose but strangely enough did not affect stock prices, as you might have expected. The most shorted stocks rode the roller coaster, the MAG7 group dumped and pumped, while Bitcoin advanced over the weekend.  

Gold trod water, crude oil rallied and reclaimed its $83 level, as that move will make its presence felt at the pump.

Back to Nvidia’s comparison with Cisco in the early 2000s. With the tech darling having shown some recent pullbacks, could this analog be still in play?

May be longer term, but right now we are facing the historically best seasonal two weeks for stock gains. Let’s see if this pattern repeats itself.