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Transcript

Down In The Dumps. · ANGLES.

• 0:01
  SPEAKER_00: Down in the dumps, my weekly market review, June 2nd, 2024.
• 0:04
  SPEAKER_00: The melt-up momentum in US stocks since late October of last year is showing signs
• 0:11
  SPEAKER_00: of faltering after a mixed four days ended a five-week winning streak.
• 0:16
  SPEAKER_00: It may be dawning on investors that higher for longer interest rates might be
• 0:20
  SPEAKER_00: undergoing a rebrand to higher for the foreseeable future.
• 0:25
  SPEAKER_00: There's not very much right now that is serving to create any sense of urgency for
• 0:30
  SPEAKER_00: the Fed to cut interest rates.
• 0:33
  SPEAKER_00: Having said all that,
• 0:34
  SPEAKER_00: the month of May came to an end,
• 0:35
  SPEAKER_00: and it was a positive one for all the major stock indexes after a tough April.
• 0:42
  SPEAKER_00: Markets opened cautiously on Tuesday following a Memorial Day long weekend,
• 0:47
  SPEAKER_00: which saw increasing violence and an escalating death toll in the Middle East,
• 0:52
  SPEAKER_00: including an exchange of fire across the Egypt-Israel border.
• 0:56
  SPEAKER_00: Fed speakers continued their higher-for-longer tour,
• 1:00
  SPEAKER_00: hammering home the message about interest rates every time they found themselves
• 1:03
  SPEAKER_00: within 10 feet of a microphone,
• 1:06
  SPEAKER_00: even occasionally re-raising the specter of a potential need to raise rates instead
• 1:11
  SPEAKER_00: of cutting them.
• 1:14
  SPEAKER_00: By the end of the day,
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  SPEAKER_00: however,
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  SPEAKER_00: the Nasdaq had reached another record high,
• 1:17
  SPEAKER_00: closing above 17,000 for the first time ever.
• 1:21
  SPEAKER_00: It was driven upwards by seemingly never-ending frantic buying of Nvidia stock.
• 1:28
  SPEAKER_00: The company is now worth more than the combined value of Amazon, Walmart and Netflix.
• 1:35
  SPEAKER_00: The other broad indexes, however, all finished mostly flat for the session.
• 1:41
  SPEAKER_00: Concerns about rapidly rising intermediate treasury interest rates gripped markets
• 1:45
  SPEAKER_00: on Wednesday,
• 1:47
  SPEAKER_00: and stocks took a substantial dive at the open and stayed down in the dumps all day,
• 1:53
  SPEAKER_00: with the S&P 500 sinking back below 5,300 again.
• 1:58
  SPEAKER_00: Things weren't helped by poor results and downbeat outlooks from American Airlines
• 2:03
  SPEAKER_00: and United Health Group,
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  SPEAKER_00: which caused negative contagion among stocks in their respective industry groups.
• 2:10
  SPEAKER_00: The first of the week's two big data releases,
• 2:13
  SPEAKER_00: the second of three official gross domestic product GDP estimates,
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  SPEAKER_00: was released on Thursday morning,
• 2:20
  SPEAKER_00: and we learned that the U.S.
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  SPEAKER_00: economy grew at 1.3% annual pace in Q1,
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  SPEAKER_00: the slowest pace in almost two years,
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  SPEAKER_00: and below expectations,
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  SPEAKER_00: largely because of softening consumer spending.
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  SPEAKER_00: Stock prices remained under pressure,
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  SPEAKER_00: even though Treasury yields did ease a touch following the GDP release.
• 2:41
  SPEAKER_00: Investors suffered another down day,
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  SPEAKER_00: particularly Salesforce,
• 2:45
  SPEAKER_00: which swiftly fell 20% after a poorly received earnings report,
• 2:51
  SPEAKER_00: with markets bracing for the following day's inflation data.
• 2:56
  SPEAKER_00: Trump's criminal conviction on all felony counts came after market hours on Thursday,
• 3:02
  SPEAKER_00: giving Wall Street time to decide by the opening bell on Friday that it didn't
• 3:06
  SPEAKER_00: really care.
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  SPEAKER_00: It chose instead to focus on perhaps the most influential inflation reading,
• 3:12
  SPEAKER_00: the core personal consumption PCE price index,
• 3:16
  SPEAKER_00: which came out pre-market and increased 0.2% between March and April and 2.8% year
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  SPEAKER_00: on year.
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  SPEAKER_00: This was all exactly as expected,
• 3:28
  SPEAKER_00: and while it showed that inflation may not be quite as sticky as some fear,
• 3:33
  SPEAKER_00: it was considered unlikely to have too much impact on the Fed's thinking.
• 3:38
  SPEAKER_00: This stopped the bleeding at least,
• 3:39
  SPEAKER_00: and despite Dell being brutally punished simply for not quite meeting crazy high expectations,
• 3:46
  SPEAKER_00: stocks recovered some of the ground lost in the two previous sessions.
• 3:51
  SPEAKER_00: Markets can't go up every day, and we will doubtless experience more volatility in the short term.
• 3:57
  SPEAKER_00: As I have been faithfully documenting in these reports each week,
• 4:01
  SPEAKER_00: the number one cause of market turbulence has been Wall Street's constantly fluid
• 4:06
  SPEAKER_00: expectations for when the Fed will cut interest rates.
• 4:10
  SPEAKER_00: In April,
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  SPEAKER_00: stocks dropped because markets thought the Fed might not cut interest rates at all
• 4:16
  SPEAKER_00: in 2024,
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  SPEAKER_00: or heaven forbid,
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  SPEAKER_00: even raise them again.
• 4:20
  SPEAKER_00: In the first half of May, that chatter quietened down.
• 4:24
  SPEAKER_00: Markets rebounded and thought the Fed could cut interest rates twice in 2024,
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  SPEAKER_00: with the first cut probably in September.
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  SPEAKER_00: Now it seems there may be another rethink going on.
• 4:36
  SPEAKER_00: These always-shifting expectations will continue to create something of an unstable environment,
• 4:42
  SPEAKER_00: but this uncertainty won't last forever.
• 4:45
  SPEAKER_00: Eventually,
• 4:47
  SPEAKER_00: the Fed's timetable will become clear and longer term investors simply need to ride
• 4:52
  SPEAKER_00: out this period of ambiguity and let the institutional equity traders,
• 4:57
  SPEAKER_00: hedge funds and day traders be the ones who lose sleep worrying about the precise
• 5:03
  SPEAKER_00: timing of Fed interest rate policy.
• 5:06
  SPEAKER_00: The medium and longer term outlook for the economy and stocks remains largely positive as things stand.
• 5:12
  SPEAKER_00: We shouldn't get too wrapped up in the interest rate psychodrama.
• 5:17
  SPEAKER_00: The precise timing of such cuts isn't going to bring this rally to an end.
• 5:22
  SPEAKER_00: But a meaningfully slowing economy or Fed rate hikes could.
• 5:27
  SPEAKER_00: That's what we need to watch for.
• 5:29
  SPEAKER_00: It's important to separate the signals from the noise.