Things you need to know
- The Momo crowd gets nervous.
- Bonds get whacked, Yield surge.
- Oil up, the VIX up.
- It’s the last week of earnings – Lots to consider.
- Try the Alaskan Black Cod
**I am travelling on Tues and Wed – so my next note will be Thursday**
Well, if you thought this market was just going to coast into Memorial Day weekend on autopilot – think again. After celebrating Dow 50,000 and S&P 7,500 on Thursday, investors, traders and algo’s suddenly remembered that inflation, interest rates and oil prices actually matter.
And once the algos and the Momo crowd realized the bond market was no longer cooperating – they started running for the door….and that was true all around the world….Asian markets ended lower on Friday, European markets also got whacked and by the end of the day – stocks here at home got hit over the head as well as the bulls took a back seat and the bears grabbed the wheel.
At 4 pm – the damage was done – The Dow got whacked for 537 pts (-1.1%) closing at 49,526… the S&P gave up 92 pts (-1.2%) to finish at 7,408… while the Nasdaq led the decline — down 410 pts (-1.5%) to 26,225 as investors took profits in many of the AI and momentum names that have powered this rally higher.
Some of the most recent highfliers – taking it hard….NVDA lost 3.6% – ahead of this week’s earnings announcement on Wednesday after the bell, MU gave back 6.6%, AMD gave up 5.7%, AVGO lost 3.3%, ARM gave up 8.5%, MRVL lost 3.1%, INTC lost 6.2%, the SOXX etf (semiconductors) gave back 4%. Speculative AI and quantum names got hit even harder – a sign that traders were de-risking the highest beta parts of the market first. IONQ gave back 6%, QUBT gave back 10.5%, RGTI lost 7.3%.
And small caps? They got absolutely smoked – down 2.4% – as rising yields suddenly forced investors to rethink risk appetite. Transports in a surprising move – actually advanced – adding 76 pts – led by Landstar + 4.8%, JB Hunt + 3%, Old Dominion +2.2%. The Equal Weight S&P gave up 90 pts or 1.1% while the Mag 7 lost 470 pts or 1.3%.
Now, let’s just go back to the transports for one minute because this is interesting – the broader market got hit hard, yet the transports advanced when they had every reason to join the crowd. There is a message buried in there – so let’s discuss – because at first glance it doesn’t make sense. Higher oil is supposed to crush transports, right? Well, Yes and No.
Freight and logistics names like J.B. Hunt, Old Dominion, UPS, UBER, Landstar all helped push the index higher…. because investors started focusing on pricing power and freight demand. Remember — when diesel prices rise, trucking capacity tightens, shipping costs rise and logistics companies with scale and pricing leverage suddenly become much more valuable.
J.B. Hunt has already talked about this – customers increasingly shifting freight patterns and optimizing routes to deal with rising transportation costs.
Then add in the China angle. Buried underneath all the Trump/Xi headline chatter was one important development – China is gonna buy more Boeing airplanes and that suggests improving trade and potentially stronger freight demand globally.
And THAT is what matters to the transports. So, while the broader market was busy panicking about inflation, yields and valuation compression… parts of the transport sector were quietly signaling that underlying economic activity is holding together better than expected. And that’s important because this didn’t feel like a classic “demand destruction” selloff. This felt more like a valuation reset driven by higher rates and there may be more to go.
But if you really want to understand what drove the action, then stop staring at stocks and look at what happened to bonds and bond yields…. because THAT is where the real story was unfolding. Bonds got whacked – the TLT and TLH down 1.5% and 1.3% respectively. And that sent yields surging…the 2 yr ended the day yielding 4.08%, the 10 yr yield surged to 4.59%, while the 30 yr ended the day at 5.12% – all levels that suggest ‘caution’ because they have pierced KEY trigger points of 4%, 4.5% and 5% respectively and that gets everyone’s attention because psychologically it changes the conversation.
Remember — higher yields are competition for stocks. And when yields rise because inflation fears are reaccelerating? That becomes a problem for richly valued, ‘stretched’ growth stocks trading on future expectations.
And then there’s oil. WTI crude surged to $106 while Brent flirted with $110 as traders continue pricing in geopolitical risk tied to Iran, the Strait of Hormuz and the ongoing uncertainty in the region. And this matters…because higher oil acts like a tax on everything. Transportation. Manufacturing. Food distribution. Airlines. Consumer spending. It all gets squeezed. Which is why the bond market is repricing the whole “Fed cuts are coming” narrative into ‘Fed HIKES may be coming’ narrative. In fact – famed investor Jeffrey Gundlach – is betting on a rate HIKE before a rate CUT and Fed fund futures are now pricing in a 51% chance of a hike before year end.
And do not discount what the bond market and stock markets are doing…. they are testing the new FED chair – Kevin Warsh – because this is no longer a JJ problem and the market wants to see what he is about to do…. And that matters – psychologically.
On the eco data front – The Empire State Manufacturing report which on the surface looked strong came in at 19.6 – up from 7.2 – the strongest read in four years. Manufacturing activity and new orders are solid. But again, there is always a BUT. Buried underneath the headline was the real issue. Prices paid and prices received both jumped sharply — meaning companies are paying more AND charging more. Translation? Inflation pressure is still very much alive.
On the other hand, Industrial Production and Capacity Utilization both advanced – and that is a positive.
And all this drama sent the VIX up 6.7% to 18.4 as traders finally started buying some protection again. It’s not panic, but it is showing concern. As we begin the new week – the VIX is up 74 cts at $19.17 – about to kiss trendline resistance at $19.74. And this is helping to put pressure on stocks this morning.
Now looking ahead to this week — the focus becomes crystal clear.
Tomorrow we get Pending Home Sales, Wednesday we get Mortgage apps and the FOMC minutes. I suspect that investors are going to dissect every word looking for signs of just how uncomfortable Jay Powell and the Fed really are behind closed doors. Are they still sitting in “wait and see” mode? Or are they quietly discussing tighter policy if inflation reaccelerates.
Thursday brings us Global Flash PMI data from the US, UK, Germany and the Eurozone. This is a real-time pulse check on the global economy. Is growth slowing? Or are we drifting toward that ugly stagflation setup where growth weakens while inflation stays sticky? Remember – 50 is the dividing line…. North of 50 suggests expansion while anything south of 50 is contraction.
Inflation data out of the UK and Canada will matter more than usual because investors are trying to determine if this inflation problem is global again and not just a US issue.
But let’s be honest… while all of that matters — next week is really about one thing: NVDA earnings – due out on Wednesday after the bell. Remember – NVDA is not just ‘another stock’. It has become the heartbeat of the entire AI trade, the semis, the Nasdaq and frankly overall market sentiment as well.
Investors are going to focus on Data center growth, Blackwell chip demand, AI infrastructure spending, China exposure, Margins and whether hyperscalers will continue to write blank checks to build out AI capacity.
If Jensen delivers another monster quarter? The Momo crowd is going to try and push this market even higher, but if guidance disappoints – even slightly – then this entire AI ecosystem could suddenly face a valuation reality check.
This week also includes earnings from HD, TOL, LOW, TGT, TJX, DE & SNOW – giving us insight into housing activity, contractor demand and the impact of higher mortgage rates. It will detail how the consumer is thinking and how inflation is taking a bite out of household budgets. Then it’s about industrial demand, agriculture, cloud spending and enterprise AI infrastructure.
So, while the headlines will scream about NVDA — the reality is that this week’s earnings lineup will help investors answer a much bigger question:
Can investors, traders and algo’s continue justifying these valuations in an environment where:
Oil is back above $100.
The 10 yr is pushing 4.6%.
The 30 yr is back above 5%.
Inflation risks are real all while the geo-political conflict is at a breaking point. If the answer starts becoming “no” – then this market will surely have to take a breath after this latest advance.
Bottom line? Yes, the trend is still up. The charts still look constructive. But Friday was a reminder that this market had gotten a little too comfortable…a little too complacent…and a little too frothy. And when everyone crowds onto the same side of the boat? It doesn’t take much to tip it over. How many times have we discussed this?
This morning European markets are mixed…. the UK and Germany are both up 0.2% while the Euro Stoxx, France, Spain and Italy are negative. – Italy getting hit the hardest – down 1.8%.
US Futures are also under pressure –…. Dow futures down 360 pts, S&P’s down 35 pts, the Nasdaq down 116 pts while the Russell is down 12 pts. Over the weekend – Trump warned Iran to ‘get moving or there won’t be anything left’ and that is keeping global markets on edge.
The S&P closed at 7408 – down 92 pts.. Again, no one should be surprised at all, the chart has gone parabolic off the April lows – so as an investor you should WANT a pullback – remember – trees do not grow to the sky. If you look at the chart – it would not be a surprise to see us test the 7150/7200 range. It would shake the branches a bit and force the weak hands to fall out…all while providing an opportunity for long term investors to buy stocks at better prices….
My advice? DO NOT make emotional, FOMO-driven decisions – in EITHER direction. Stay focused. Stay in quality. Stick to your plan. A plan that should be based on who YOU are, your age, your risk tolerance and your liquidity needs. Feel free to call me at 561-931-0190 to discuss.
Take good care,
Kp
[email protected]
Source: Bloomberg, CNBC, Reuters, Wall Street Journal
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Alaskan Black Cod (Aka – Alaskan Sablefish)
If you’ve never had this – you need to try it. This fish has a rich buttery taste, and its fatty texture lends itself to a great meal.
I order this from Jerry’s Meats and Seafoods (jerrysmeats.com – 1-877-789-0789) in Juneau, Alaska – it come flash frozen, packed in dry ice. ….it is now a family favorite…You will not see this fish in your local fish market – unless you live in Alaska or the Northwest US – so I order it from Jerry, and he sends it via UPS overnight. If you call there, ask for Scotty and tell him Kenny sent you.
You need – the fish, butter, s&p, fresh lemon juice, dry white wine (you can use chicken stock) and capers.
Set your oven to 400 degrees (bake).
Defrost it in a pan of warm water…let it defrost slowly…. Once it’s defrosted – rinse and pat dry.
Season it with s&p, fresh lemon juice and melted butter.
Place in the oven and let it roast for 10 mins…. then add a splash of dry white wine – Pinot Grigio Santa Margherita and capers. Allow it to roast for another 10 mins…. You can baste is with the butter and wine while its cooking….
When done, remove and place on your plate – (one-piece feeds two people). I served this on a bed of wild rice with roasted butternut squash and a large mixed salad. A chilled glass of the Pinot Grigio finished the meal.
Buon Appetito