[Chart courtesy of MarketWatch.com]

1. Moving the markets

The bulls were in charge today, lifting the major indexes higher with little resistance from the bears. The Dow finally snapped its losing streak of six days, thanks to a tech rally.

A flurry of positive economic data also boosted the market mood, showing signs of strength in the economy, despite the looming threat of a recession. Or maybe we are already in one, but we just don’t know it yet, because we use different metrics now.

Anyway, here are some of the highlights from today’s reports:

• Consumer Confidence jumped to its highest level in a year, as people felt more optimistic about the next six months.
• New Home Sales surged by 12.2% in May, the biggest increase since May 2022.
• Home Prices soared in April, as lower mortgage rates made buying more affordable.
• Durable Goods Orders rose by 1.7% in May, beating expectations and indicating strong demand for long-lasting goods.

But not everything was rosy today. Walgreen’s cut its earnings guidance and blamed “cautious” customers for its poor performance. Its shares plunged to a 10-year low. Ouch indeed.

Some analysts still think that the economy is doing fine, and that the chances of a recession are fading. If they are right, the Fed might have to raise interest rates a few more times this year, which would put an end to the hopes of a rate cut from Fed chair Powell. I doubt that he will change his hawkish stance anytime soon.

The upbeat data also triggered a short squeeze, as bond yields jumped higher. The dollar, however, weakened, while gold fell to its lowest level in three months.

The big question is: how long can stocks keep defying economic reality? This chart shows how out of sync they are with the rest of the data. I expect them to come back down to earth in the next quarter.

[Chart courtesy of MarketWatch.com]

1. Moving the markets

The bulls are still on vacation as the market continues to drift lower. The major indexes barely moved today but ended up in the red zone again. The Nasdaq suffered the most, as tech stocks lost their mojo.

Interestingly, the S&P 500, which had been driven by a handful of big tech names, showed a different pattern today. While the SPY dropped 0.33%, its equally weighted counterpart rose 0.65%. This means that the broader market is holding up better than the tech sector, which is losing steam. This trend started last week and could signal a shift in market leadership.

Another sign of change is the reversal in the growth vs. value battle. After being trounced by growth for a few days, value funds bounced back today and erased their losses. Check out this chart to see the dramatic turnaround.

On the economic front, we got some bad news from Texas. The Texas Manufacturing Survey plunged for the fifth month in a row, coming in at -23.2 vs. -21.8 expected. Even worse, the outlook turned negative for the first time since 2016, dropping to -4.2.

Bond yields were mixed, the dollar was flat, and gold edged higher. As we wrap up June, we have some important data points to watch this week. The most crucial one is the PCE (Personal Consumption Index), which is the Fed’s favorite inflation gauge. This could affect their decision on how many rate hikes they will deliver this year.

But the market seems to have a different view. It’s betting that the Fed will cave and start cutting rates soon. I’m not convinced, and I think the market is too complacent. Especially when you consider the possibility of an AI bust, as this chart from ZeroHedge shows. History suggests that every boom ends with a bust, and AI could be no exception.

[Chart courtesy of MarketWatch.com]

1. Moving the markets

The stock market was a rollercoaster ride yesterday, with the S&P 500 and Nasdaq barely ending in the green after a three-day losing streak. The culprit? Fed chair Powell’s hawkish comments on more rate hikes to tame inflation.

The economic outlook was also gloomy, with the US Leading Economic Indicator (LEI) dropping for the 14th consecutive month, signaling weaker activity ahead. The LEI plunged 7.9% year over year, close to its worst decline since 2008.

Existing Home Sales edged up 0.2% in May, but prices fell the most since 2011. Meanwhile, initial jobless claims soared to 264k, the highest since October 2021.

Across the pond, the Bank of England (BoE) shocked the markets with a 50-bps rate hike to fight their soaring inflation. Exchequer Jeremy Hunt said that “bringing inflation down is our absolute priority.”

That sounds familiar, doesn’t it? But US traders and algos seem to ignore Powell and keep buying stocks in the hope of lower rates.

The only thing that saved the day was a short squeeze, which lacked conviction but managed to lift two of the three major indexes into positive territory.

Banks continued to slide, bond yields rose, boosting the dollar and hurting gold, which sank to 3-month lows.

If you’re confused by all this market madness, you’re not alone. Cartoonist Bob Mankoff summed it up for you in this hilarious illustration: