Markets Don’t Care

By Jeff Kelly on May 31, 2024

“I consider trial by jury as the only anchor ever yet imagined by man, by which a government can be held to the principles of its constitution.”

– Thomas Jefferson

When I was a kid, there was always something happening at our house. When my brothers were home, shenanigans were happening. As the youngest, I always wanted to participate unless of course there were negative consequences for myself. I was gullible, and I really wanted to hang out with them.  They could get me to do things that any sane human being would know was a mistake. Most of these adventures occurred in the summer months when I was out of school. My mom would give very direct and concise instructions when she left for work. My brothers were to watch over me and I was to do what they told me. I believe my mom thought of it as a chance for my brothers to show some maturity by dealing with their little brother. I also think she knew what they would put me through and considered it a bit of a character-building exercise for me.  

One time they talked me into going up on the roof of our house to recover a ball they’d thrown up there. I dutifully brought out the ladder and climbed up, they took the ladder away. I spent the better part of the day on the roof. Got a nice sunburn.  Another time they made by brother Greg, eat a live fish. Held him down and stuffed it in his mouth. They wouldn’t let him up until he chewed it up and swallowed it.

I called my mom at work to tell her what happened. She didn’t care. It had no impact on her day.

That’s pretty much how the markets view the conviction of the former President last night. It just doesn’t care. The weakness in technology today was caused by some high-profile earnings misses last night. Otherwise, it’s just not something moving the needle. On to more important matters.

Markets have been showing some different behavior the past few days. Unlike the last year or so, we’ve seen large declines in some of the software names associated with AI and cloud computing. This has occurred while other sectors such as industrials, utilities and financials have done fine. However, the index’s reliance on these big tech equities has led to a softer performance in the S&P 500 and especially the Dow Jones Industrial average.

We’ve also seen some modest out performance by small cap stocks. Europe too, with the lack of political drama and a better inflationary backdrop, has also been a leader. We expect this to continue. Interesting to see a rebound in energy stocks today with the commodity, oil, still trading lower. We need all the energy we can produce over the next decade. Building out AI along with the pressures on the grid from electric vehicles will be extreme.

India is currently running all their power plants at 100% of capacity and struggling to keep up with their growing power demands. The economy there is doing well. One of the few things that could derail their progress is a lack of power producing capability.

We also saw some small declines in rates over the past few days. Given how persistent the rise has been, any respite is taken well by the markets.

Next week will bring a slug of data culminating with the employment report on Friday. The optimum scenario for markets is some weakness in the report. This would continue to take some pressure off interest rates and inflation worries. Data continues to improve and that is the most important factor. It’s certainly more important to markets than the current political theater.

CHARTS FROM THE WEEK PAST

U.S. Durable ex defense and aircraft turning higher.

Monthly supply of new homes continues to rise sharply … now at highest since November 2022.

April pending home sales -7.7% month/month vs. -1% est. & +3.6% prior (rev up from +3.4%).

S&P 500 companies have announced stock repurchases at the highest rate in almost 2 years per Bloomberg Intelligence (+16% year/year in 1Q2024).

May Eurozone CPI up 2.6% year over year.

A small acceleration month over month and the last report before the ECB meeting.

Rents nationally are *down* 0.8% year-over-year YoY rent growth has now been modestly negative for a full year, bringing prices 2.6% below their 2022 peak.

Gas prices are higher.

In a normal year we are at or near the peak.

Heat map from Thursday.

Lots of stocks are up but indexes were dragged down by large technology.

The number of “shoot days” is rising as television and movie makers recover from strikes last year.

Technical warnings continue to stack up on the Nasdaq.

They don’t matter right up until they do.

10-year yield and U.S. Dollar diverging.

One will be wrong.

Consumer Confidence Index up to 102 vs. 96 est. & 97.5 prior (rev up from 97); present situation up to 14.1 vs. 140.6 prior; expectations up to 74.6 vs. 68.8 prior.

Consumers are bullish on stocks … as of May, 48.2% expected stock prices to increase over the next year per Conference Board.

Most stocks are still in uptrends, but momentum has slowed as we prepare to enter June.

The largest cap stocks have begun to outperform once again.

Today’s market is nothing like the dot com market of 1999-2000.

Below is a list of highflyer stocks from the dot com period.

Look at the p/e ratios.Price to Earnings Ratios of current leaders: Nvidia: 63 Amazon: 51 Tesla: 46 Netflix: 45 Microsoft: 37 Apple: 30 Google: 27 Meta: 27

Freight costs are moving significantly higher.

The breath of the stocks that comprise the QQQ (Nasdaq 100) has turned lower.

The hiring of top earners has slowed.

Germany has a labor problem.

The number of workers is shrinking.

China is the largest exporter of cars in the world.

Tech, financials, and healthcare make up about 50% of the S&P 500.

Lots of homes are being taken off the market if they aren’t sold quickly.

WEEKEND HOMEWORK

Minnesota Republican congressional candidate Royce White says, “women have become too mouthy”. I wonder why some think the far right is a menace.

Women Have Gotten ‘Too Mouthy,’ Says This Republican Senate Candidate

A bipartisan effort investigating Covid. And it’s making progress.

A House committee set out to investigate COVID. Surprisingly, it’s making headway.

A profile of Martin Scorsese-Very well done.

Martin Scorsese: “I Have To Find Out Who The Hell I Am.”

An answer to the leader of Ireland who thinks there’s no antisemitism there….

Our statement in response to @PresidentIRL Michael D. Higgins’ comments in @irishexaminer concerning antisemitism in Ireland.

A great read.

Since 1984, Nicholas Kristof has worked almost continuously for The New York Times as a reporter, foreign correspondent, bureau chief, and now columnist, becoming one of the foremost reporters of his generation. Here, he recounts his event-filled path from a small-town farm in Oregon to every corner of the world.

Reporting from Hong Kong, Beijing, and Tokyo, while traveling far afield to India, Africa, and Europe, Kristof witnessed and wrote about century-defining events: the Tiananmen Square protests and massacre, the Yemeni civil war, the Darfur genocide in Sudan, and the wave of addiction and despair that swept through his hometown and a broad swath of working-class America. Fully aware that coverage of atrocities generates considerably fewer page views than the coverage of politics, he nevertheless continued to weaponize his pen against regimes and groups violating basic human rights, raising the cost of oppression and torture. Some of the risks he took while doing so make for hair-raising reading.

Jim Bianco thinks there could be rate HIKES in our future!

Erik Townsend and Patrick Ceresna welcome Jim Bianco to MacroVoices. Erik and Jim discuss:

• Interest, Inflation Rates & Bond Yields
• Fed Rate Hikes and The Economy’s Strength
• Economic Crisis & Budget Deficits Topic 4
• Oil Demand & Supply, With Focus on China
• Gold Prices & Asian Markets
• US Election & The Stock Market

MacroVoices #430 Jim Bianco: Rate Hike On Deck

Spring gives way to summer soon. Get out there this weekend. Make it the best one ever. If not us, then who? If not now, then when? There’s never again going to be a weekend of June 1 & 2 2024. Make it happen. Have a terrific weekend.