Tech Stocks Slump Amid Weak Economic Data; NVDA Loses $246 Bil as Market Shows Signs of Exhaustion!/Try the One Pa…

Kenny PolcariUncategorized

Free pay stock exchange negotiation illustration

Things you need to know.

–        Eco data unexpectedly weakens.

–        Supports the rate cut narrative.

–        Tech gets slapped, NVDA loses $246 billion of value.

–        Bonds hold, oil rises, gold surges

–        S&P rebalance & Triple Witching – But don’t expect any disasters.

–        Try the One Pan Thighs

The theme on Thursday was Exhaustion. 

Exhaustion is defined as ‘a state of extreme physical or mental fatigue’.

But before we go there, let’s make sure to discuss how the S&P breached another century mark before it pulled back….that is the 8th century mark since January 1st, 2024….Recall – we began the year at S&P 4769 – at 9:46 am yesterday we kissed 5505 – and then retreated….unable to keep pushing.  Exhausted.

Now had you looked at the RSI (Relative Strength Index) you wouldn’t be totally surprised – it gave us a clue that a near term pullback was possible….as of yesterday morning – the RSI was at 76.8997 – 6 pts above the 70 mark (recall 70 is the level defines overbought) ……causing the buyers to become a bit more cautious…think ‘less aggressive/more patient’.  And what that means is that they buyers are taking a break! – While they are there, they are not going to step over each other to buy NVDA – which lost 3.5% yesterday (or $246 billion of value) and is down another 2% this morning.

This morning the RSI is 73.4335 – still in overbought territory and still suggesting possible weakness (futures are down, European markets are lower as well) – but do not distress…possible weakness does NOT mean Crash, Bang, Boom!  It just means that the buyers are tired and need to regroup…..which might mean that sellers (who thought the only way was up) and who are anxious to ‘ring the cash register’ will become the aggressor and start to hit bids – to raise cash….and so it is – buyers and sellers managing and pricing risk every moment of every day.  

And where did we see the exhaustion present itself?  That’s right – TECH – the XLK down 1.2% but more specifically – NVDA – which gave up 3.5% – leaving it up 172% ytd….AAPL -2.1% – leaving it up 9% ytd,  AVGO – 3.7% – still up 55% ytd, QCOM – 5.1% – up 48% ytd, AMAT – 3.1% but still up 48% ytd., KLA – 4% but up 42% ytd.  We saw weakness in the Semi’s – SOXX – 2.7% but still up 31% ytd, Cybersecurity – CIBR – 0.3%, +2% ytd, Expanded Tech – IGM -1%, +26% ytd, Expanded Tech (Software) – IGV – 0.15%, +3% ytd.   Hardly anything to panic about…and hardly anything to cause you to shift your plan….

In the end – it was a mixed performance – At the closing bell – we saw the DOW gain 300 pts or +0.8%  – leaving it up 3.8% ytd, the S&P down 14 pts or 0.25% but up 14.75% ytd, the Nasdaq down 140 pts or 0.8%- but still up 18% ytd, the Russell down 8 pts leaving that one -0.5% ytd, the Transports +177 or 1.2%  – leaving it down 5% ytd while the Equal Weight S&P gained 4 pts or 0.06% leaving it up 4.4% ytd.  Note that the Dow, the Russell, the Transports and the Equal Weight S&P have all been relative underperformers this year (compared to the S&P and the Nasdaq)….the rally driven by TECH is all too obvious and if you are getting nervous now – then you might be overweighted in the ‘sector’. 

Just an fyi –  While the S&P has managed to kiss new highs 31 times this year – the 10 largest stocks in the S&P (mostly tech) have outperformed the other 490 names – which only means that you can’t get caught up in the mania….You need to focus on the broader picture and build a well-diversified portfolio.   

Look – has anything really changed?  Bullish sentiment remain intact, economic data remains robust, bond yields have NOT exploded higher and the recent bond auctions have found plenty of interest – yesterday’s $21 billion of 5 yr. TIPS just another example.  The FED while softening a bit, remains committed to the trade – holding rates here for longer than many thought possible…as they try to kill the inflation monster – which Neely Kashkari told us yesterday- most likely will take another year or two!

Just a note – the FED held rates at zero for 14 yrs. – (168 months)….they only started to raise rates in March 2022 – and didn’t hit 5% until May 2023….So, these ‘restrictive’ rates have only been here for 13 months…So for anyone to think that the FED needs (or has) to cut rates at this point is curious to me.  It took us 14 yrs. to get to this point – its not over in 14 months….

Remember – consumers are ‘exhausted’ with ongoing higher prices (recall last week’s U of Mich Sentiment Survey which plunged to a 7 month low)  – inflation (as seen by consumers) is still clocking in at 3.4% annually – so the risk (of reigniting inflation) that the FED runs by cutting prematurely is adding fuel to the fire that they are trying hard to put out.  In this case – the FED does not want history to repeat itself – think 1980/1982…  Again – you have to ask why would they cut rates right now?  Have they managed that soft landing – where economic data points remain robust while inflation subsides? No.  (Which would be a big positive) or are they considering cutting rates because the economic data is weakening all while inflation remains alive? (Because that would be a different story and one less positive) and that would change the thesis a bit.   

Now depending on where you are on this question – will determine how you allocate money to investments. But remember – for the long-term investor – it is time IN the market, not timing THE market. Which doesn’t mean you don’t tweak it along the way, but it does mean you don’t completely change a well devised and well thought out plan unless your ‘theses have changed.  Again, at some point – you have to be comfortable with being a bit uncomfortable – valuations are high (stretched) vs. history, so a pullback is widely expected, so if you have more money to put to work – you can afford to be patient – remember – your gov’t money mkt fund is paying you 5% to hold cash – and that IS an investment decision.

For now – there is no reason to think this is the beginning of the end –I mean – How long have we been ‘hoping’ for a pullback – to take the fluff out, to shake the branches just a bit?  Not sure about you, but I have been waiting and waiting……Which doesn’t mean I have not found opportunities – I have – think Healthcare, Utilities, Financials, Industrials…sectors that help to balance out the portfolio.  But if you want to add to TECH – then you want to see it ‘come in a bit’.

Yesterday’s eco data was weaker – showing an unexpected decline in Housing starts…..coming in at -5.5% vs. the expected +0.7%, Building permits also disappointed – coming in at -3.8% vs. the expected +0.7% all while the Philly FED Business Outlook Survey came in at 1.3 vs. 5 and that weakness just added caution to the tone of the day.  Today we are due to get US Manufacturing and Services PMI’s – both expected to be in expansionary mode at 51 and 54 respectively….

Bonds got whacked a bit…. after the data suggested a slowing economy…the TLT down 0.7% while the TLH gave back 0.5%.  The 2 yr. yield settled at 4.73% while the 10 yr. yield settled at

Oil rallied by 0.6% yesterday to end the day at $81.24…. we remain in the $79.40/$85.50 trading range. – It’s the same story…. summer demand to drawdown oversupply….and overall global demand growth for energy…OPEC+ production cuts remain intact and they have made it clear that any return of barrels to the market will hinge on market conditions (makes sense, right?)…which means that any idea of loosening the grip is not guaranteed at all. Analysts on the street are now calling for oil to pierce the late April high of $82.50 and then challenge the early April high at $85.  Just fyi – oil is up 11% in the last 2 weeks…and is now up 13% ytd.

Gold shot higher yesterday +1.15% or $26/oz and again this morning + 0.5% or $11 more/oz…. now trading at $2380 – the advance a direct result of the ‘weaker’ eco data that supports the multiple rates CUT narrative……Period.  We remain in the $2300/$2400 trading range.

This morning US futures are under a bit of pressure.  Dow futures -60, S&P’s -12, Nasdaq -45 while the Russell is -1. The S&P rebalancing is happening today…we spoke about this earlier in the week…..NVDA’s weighting in the XLK is going from 6% to 20%, while Apple’s weighting goes from 21% to 4.5%, MSFT remains the same at 21% – but this is not a surprise….trust me – the analysis has been going on for a while now….funds are prepared, so if you think there is going to be all kinds of volatility – think again….There will be big volumes on the close but I do not see big dislocations – unless of course – someone screws it up and forgets to put in his order!  (Which has happened, trust me again…I know!).

And then there is the triple option expiry – known as ‘triple witching’ – where options on stocks, indexes and futures all mature…today it is expected that $5.5 trillion of options are set to expire and need to be rolled over… and while that sounds dramatic – its just a number…It all happens seamlessly….the only thing about it today is that it coincides with the S&P rebalancing – which just adds a bit of spice to the equation…but again – trust me – they have been planning on this for weeks now…

European markets are all lower…. BoE kept rates unchanged yesterday but hint at a move in August. UK Retail sales rose in May, French business confidence held steady for the 6th month straight.  Flash PMIs in Germany coming in a bit weaker.  At 6 am – markets across the board are all down between 0.5% & 1%. 

The S&P ended at 5,473 – down 13 pts – The VIX (fear index) rose by 6.3% yesterday and is up another 1.2% at 13.45 this morning. Trendline resistance is at 13.85 & 14. Any angst will see us shoot right up and thru those levels and if we do, watch as stocks weaken.  Look – all we need is for one stock to weaken, then the whole market will follow.

Remember – having a plan is key for a long-term investor…and while the surge higher is great – emotional FOMO decisions are never a good idea. Give me a call to discuss.  

Take good care.

Sources:  Bloomberg, CNBC, Reuters, Wall Street Journal

Disclosure: The content provided in this material is designed for educational and informational purposes only, and it is important to note that it does not constitute personalized recommendations. This commentary is not nor is it intended to be relied upon as authoritative or taken in substitution for the exercise of judgment.  The comments noted herein should not be construed as an offer to sell or the solicitation of an offer to buy or sell any financial product, or an official statement or endorsement of Kenny Polcari or SlateStone Wealth.

The market commentary is the opinion of the author and is based on decades of industry and market experience; however, no guarantee is made or implied with respect to these opinions, which may not necessarily align with our firm’s standpoint.

While considerable effort has been invested to ensure the accuracy and dependability of the information presented, we must clarify that we cannot guarantee the accuracy of third-party information. Our usual sources for third-party data include channels such as Bloomberg.

Kenny Polcari is the Chief Market Strategist for SlateStone Wealth.  Neither Kenny nor the partners of SlateStone Wealth are compensated in any manner by the issuers of any securities mentioned in the publication.

Chef hat, knife, and fork icon

One Pan Chicken Thighs

I made this yesterday for dinner – put it over mashed cauliflower. 

For this you need 6 thighs, skin on, bone in, red onion, garlic, flour, butter, olive oil, paprika, s&p, 4 tomatoes and 2 tblspns of sour cream.

Begin by seasoning the thighs with s&p, both sides.  Brush with olive oil. 

In a large sauté pan that will accommodate all the chicken – melt ¾ stick of butter with a splash of olive oil….once the butter gets nice and hot, but before it burns – add in the seasoned the thighs and let it brown on the one side – maybe 5 mins….When browned – flip and brown the other side – another 5 mins.  Remove and set aside. (No reason to cook completely, because we will simmer this for 30 mins.)

Next – add in the sliced red onion and the chopped garlic…I used one lg red onion and 7 cloves of garlic – chopped.  Add to the sauté pan that you used to brown the chicken. Sauté it around for 5 – 8 mins…or so. Now season (add) the paprika – 1 tblspn and then add 2 tblspns of flour.  Mix well to incorporate.

While that is happening – take your tomatoes, slice them in half – remove the stem – and then cube them.  Place in your food processor and blend until smooth. 

Add the blended tomatoes to the pan and mix – season with s&p to taste.

Bring it to a boil and then turn heat to simmer.  Add in 2 tbspns of sour cream and incorporate.  Now add back the chicken thighs…Cover and let simmer for 20 mins, then uncover and let simmer for 10 mins more.   

Now make the cauliflower mash – You need the cauliflower, butter and cream (1/2&1/2), sour cream.

Bring a pot of salted water to a boil –

Peel back the cauliflower and then slice into pieces, add to the water and boil for 5 mins…. remove and strain.  Now put the cauliflower into the food processor with some butter and cream – blend until nice and smooth.  Remove  – add 2 tblspn of sour cream and mix.  Season with s&p – set aside.  (You can also add in your favorite cheese here if you wish).

When ready – spread the cauliflower mash on the plate and then top with one of the thighs and spoon the sauce over it. 

Buon Appetito.