No disruption so far in the tell of the tape

The Dow, Nasdaq, and S&P 500 all hit new record highs yesterday in the wake of economic data that was construed as just right for a soft landing. Consumer inflation disinflated a bit on a year-over-year basis and retail sales activity moderated in April from the prior month.

The connection for many is that the data were following a path that would allow the Fed to announce its first rate cut no later than September. An added assumption is that the Fed will stick its landing in managing monetary policy deftly enough not to cause a recession.

Time will tell, but the tell in yesterday’s tape was a hopeful sense of confidence in both regards.

Treasury yields fell sharply, expectations for a few rate cuts by the end of the year went up in the fed funds futures market, and stocks rallied in a broad-based way from the small caps to the mega caps.

There isn’t a lot of follow through on that rally effort this morning, but importantly, there isn’t any concerted selling pressure either.

Currently, the S&P 500 futures are down one point and are trading in-line with fair value, the Nasdaq 100 futures are down two points and are trading in-line with fair value, and the Dow Jones Industrial Average futures are down five points and are trading fractionally above fair value.

Dow components Walmart (WMT) and Cisco (CSCO) provided support with earnings results and guidance that met investor approval. Shares of WMT are up 6.2% and shares of CSCO are up 2.1%. Deere & Co (DE), though, took some of their shine away with a reduced profit outlook for FY24. Shares of DE are down 4.8%.

Once again, there is a good bit of attention being paid to the economic calendar. Several reports hit at 8:30 a.m. ET:

• Initial jobless claims for the week ending May 11 decreased by 10,000 to 222,000 (Briefing.com consensus 218,000). Continuing jobless claims for the week ending May 4 increased by 13,000 to 1.794 million.
  • The key takeaway from the report is that the level of initial jobless claims remains supportive of an economy that is not steering toward a recession.
• Housing starts increased 5.7% month-over-month in April to a seasonally adjusted annual rate of 1.360 million units (Briefing.com consensus 1.440 million). Building permits declined 3.0% month-over-month to a seasonally adjusted annual rate of 1.440 million (Briefing.com consensus 1.488 million).
  • The key takeaway from the report is that there wasn’t any strength in single-unit starts (-0.4% month-over-month) or single-unit permits (-0.8%), which is a setback for an inventory-constrained existing home market dealing with the added constraint of high mortgage rates and high prices that have created affordability pressures.
• Import prices increased 0.9% month-over-month in April (+1.1% yr/yr). Excluding fuel, they were up 0.7% (+0.9% yr/yr). Export prices rose 0.5% month-over-month in April (-1.0% yr/yr). Excluding agricultural products, they were up 0.7% (+0.1% yr/yr).
  • The key takeaway from the report is that import and nonfuel import prices have accelerated in each of the last two months, which is contributing to inflation sticking stubbornly above the Fed’s 2% target.
• The Philadelphia Fed Index for May checked in at 4.5 (Briefing.com consensus 5.0) versus 15.5 in April. A number above 0.0 is indicative of expansion, so the May reading connotes a slowdown in the pace of expansion versus the prior month.
  • The key takeaway from the report is that manufacturing activity in the Philadelphia Fed region is still positive, but weakened in May in a manner that fits with a slower growth narrative.

Treasury yields have pushed up modestly in the wake of these reports. The 2-yr note yield is up two basis points to 4.76% and the 10-yr note yield is down one basis point to 4.35% (but up from 4.32% prior to the releases).

Not a lot of disruption in those moves, so not a lot of disruption in the equity futures market, which is waiting to see if the tell of today’s tape conveys follow-through interest.

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Originally Posted May 16, 2024 – No disruption so far in the tell of the tape