1. Moving the markets

The major indexes opened slightly higher despite disappointing retails sales. While they rose 0.1% in May, expectations were for a more solid 0.2%. This latest result is a sign that consumer demand is weakening, and this 0.1% growth may simply have been the result of inflation.

Rising consumer demand is critical for the markets, because without it this bull market will eventually fall flat on its face. After all, consumer activity accounts for some 67% of economic growth and is a key component for corporate profits. Offsetting this weakness, however, was strong industrial production.

Still, bond yields slipped, and traders focused right away on the wishful theme that this slowdown may persuade the Fed to shift policy gears and lean towards cutting rates.

The indexes eked out another green close with the S&P 500 rising to a new record, as tech darling Nvidia also marched towards new highs, in the process surpassing Microsoft as the most valuable public company.

Interestingly, the Mag 7 stocks faded with ZH noting togue in cheek that the markets have now become the “Magnificent One.”

A variety of the Fed mouthpieces appeared, but their opinions on rate cuts were a mixed bag and did not influence market direction, but rate-cut expectations rose during the session.  

The most shorted stocks remained in their 3-day sideways range, as bond yields fell and the dollar dipped. Bitcoin continued to break down by heading towards its $64k level, while gold slid at first but then rallied into the close. Crude oil extended its gains and headed towards $82.  

With Nvidia’s relentless climb into uncharted territory, I wonder how long this will last…

Are we seeing a turbo-charged replay of the dotcom bubble?

1. Moving the markets

The indexes were closely hugging their respective unchanged line at the start of the session, as we entered the Holiday shortened week. Some of this uncertainty was based on tomorrow’s release of the May retail sales numbers, which can represent the financial health of the consumer.

After the early dip, buyers stepped in and pulled the indexes out of their slump, and off to the races we went with all 3 majors advancing solidly, supported by traders’ beliefs that future economic data would come in stronger and with more consistency.  

Last week was a mixed bag for the major indexes with the Dow recording its third losing week in four, while the S&P 500 and Nasdaq scored their seventh up week out of the last eight.

Also on deck will be home sales and housing-starts later this week.

Bond yields rose across the spectrum, which pulled rate-cut expectation lower. However, traders did not seem to care and drove equities higher, which created this divergence between the 10-year and the S&P 500.

Not to be left out, the MAG 7 stocks soared, but breadth keeps on getting worse, as the S&P 500 goes its separate bullish way when compared to those of its members that are positioned above their 200-day M/A.

The dollar weakened despite higher yields, crude oil rebounded sharply and crossed it $80 level to the upside. Gold slipped, but Bitcoin rebounded and raced back toward its $67k level.

ZH pointed to another market oddity, namely that the MAG7 stocks have added $3.3 trillion in market cap in Q2 so far, while the 493 other stocks in the S&P 500 have lost $270 billion.

Hmm…does that look like a healthy, balanced, and sustainable market to you?

1. Moving the markets

The major indexes wavered with the Dow being the weakling of the day, despite more inflation data showing better-than-expected results.

May’s Producer Price Index (PPI), which was anticipated to rise 0.1%, came in lower by 0.2% from the month of April. That sort of confirms the Fed’s view yesterday that “progress has been made on the inflation front.”

Traders are now convinced that the CPI and the PPI have eliminated the always-present possibility of an interest hike, at least for the time being. That should help equities to grind higher and create the summer rally.

The Dow managed to wipe out most of its early morning losses, while the S&P 500 and Nasdaq knee-jerked and then rebounded to close at new record highs. However, breadth was deplorable and diverged from price action.

Initial jobless claims surged to 10-month highs, as joblessness soared with California leading the pack. First time applications rose to 242k, much above expectations of 225k and higher from last week’s 229k reading. Continuing claims also headed back above 1.8 million Americans, which was the highest level since January.

The most shorted stocks continued their decline, bond yields dipped, and the 10-year closed at three-months lows, as ZH pointed out. The dollar edged higher, while Bitcoin retraced yesterday’s gains.  

Oil prices zig-zagged but were not able to recapture their $78 level, as gold followed Bitcoins path by giving up yesterday’s advance.

That leaves us with another alligator snout, which prompted ZH to ask:

Which trades first—S&P down to 5,000 or the 10-year yield down to 3.5%?