Things you need to know
- S&P pierces 7400! Nasdaq and Russell print new highs too.
- Do Up volumes and Down volumes suggest caution?
- Trump tells Iran to re-think their position.
- CPI due out at 8:30…
- CSCO, OKLO, CRWV & RBLX just a few of the names reporting.
- Try the Baked Cod.
Wake up and grab the coffee – the S&P, Nasdaq and Russell 2000 all closed at new all-time highs again as investors navigated between AI euphoria, the ongoing Middle East reality and today’s latest CPI report — which is expected to show rising inflationary pressures.
But underneath the surface? The story wasn’t nearly as strong as the headlines suggested. While the cap-weighted S&P pushed higher, the Equal Weight S&P actually finished lower — a sign that the rally continues to be driven by a small handful of mega-cap names while the average stock struggled to keep up. Add in NYSE volume statistics that showed down volume outpacing up volume by roughly 56% to 38%, and it becomes clear that participation in this rally remains narrow.
In other words? The indexes may be making new highs, but the broader market is sending a cautious message as investors continue crowding into the same AI, hyperscaler and momentum trade. In fact, Charles Schwab is now warning that call option buying in the tech sector has reached “sky high levels” — and to me, that reeks of investors and traders getting completely FOMO’ized.
And remember — when everyone crowds onto the same side of the boat, the boat usually tips over. That’s what makes this kind of narrow leadership dangerous. Because at some point there are simply no buyers left…everyone who wanted in is already in. And when momentum finally breaks? The exit doors suddenly become very small.
Now, I’m not saying the AI story is over — not even close. But when speculation starts replacing discipline and call option activity starts exploding, that’s usually a sign that emotions — not fundamentals — are beginning to drive the trade. And THAT is what becomes dangerous. Historically? THAT tends to be the contra indicator. Just sayin’.
And remember — NVDA reports next week — and you can already feel the excitement building. The stock broke out yesterday, surging above its previous all-time high near $216 to close at $219.14 — leaving it up 17% year-to-date and up roughly 34% since the start of the quarter.
That’s what we call “priced to perfection” — meaning expectations are now sky high. Investors are no longer simply expecting strong numbers…they are expecting spectacular numbers, spectacular guidance and another AI mic-drop moment. Which means that anything suspected of being short of a blowout quarter and blowout outlook could easily trigger the trader types to hit the sell button and lock in profits. And depending on what they interpret – that could easily spread to the broader tech sector…. because all of it is priced to perfection.
And look — that’s not necessarily a statement about the long-term story. It’s about positioning, sentiment and expectations in the short term. Because when everyone is leaning the same way, even great news can suddenly become “not good enough.”
To be clear — I’m personally NOT selling my NVDA – unless the thesis completely changes and if that happens, then the whole AI trade implodes (not happening). The long-term AI buildout story remains very real in my opinion. But near term? The stock has become a sentiment trade, a momentum trade and a positioning trade all wrapped into one. And that means volatility around earnings is usually dramatic — in both directions.
And let’s not forget that the Iran/US situation is not really improving….Iran rejected our latest proposal, offered a new one – demanding an end to the war, a lifting of all sanctions, release of all frozen assets, and an end to ‘the piracy’ against Iranian ships and ports. Never mind that they have no intention of giving up any of their nuclear ambitions…. Trump rejected it – claiming it to be ‘totally unacceptable’.
Bonds sold off sending yields higher….. The TLT lost 0.6% and the TLH gave up 0.5%. The 2 yr is now yielding 3.96%, (that’s up 14% from the 3.47% on February 28th) the 10 yr is yielding 4.42% (up from 4.03%) while the 30 yr is rubbing right up against 5% (up from 4.67%). The VIX jumped 7% yesterday and is up another 3% this morning. Gold is down 0.7% this morning at $4,701 as gold bugs await today’s latest inflation report…. The April CPI.
And it is expected to be HOT… with headline CPI forecast to rise +0.6% month-over-month and +0.3% on the core reading ex-food and energy. On a year-over-year basis, expectations are for +3.7% on the headline and +2.7% on the core.
As I said yesterday — the real surprise would be if CPI comes in cooler than expected…something that feels hard to believe given where oil prices are, the ongoing tensions in the Middle East and the ripple effects we’re already beginning to see throughout the supply chain.
But the real FEAR? The fear is that inflation comes in even HOTTER than these already hot expectations. And if that’s the case — let’s see if anyone still wants to call this “transitory.” Because if this conflict drags on and oil remains elevated for much longer, then next month’s CPI — and likely the months after that — are going to start looking uglier and uglier.
And if that’s not enough – the PPI is due on Wednesday and that too is expected to be HOT on both the top line and the Core line.
And remember — inflation is not just an economic issue; it’s a political issue. Higher gasoline prices, higher transportation costs, higher food prices and higher utility bills all hit consumers directly — and voters tend to notice that very quickly. Which means if inflation continues to accelerate into the summer, it’s not going to do the GOP any favors heading into the midterms which could just be another reason for some summer volatility.
The Dow ended up 95 pts, the S&P added 14, the Nasdaq up 28, the Russell added 10 pt, the Transports lost 155 (think oil), the Equal Weight S&P lost 7 pts while the Mag 7 gave up 88 pts.
The strongest sectors – You can almost guess…Energy up 2.6% (oil was up 3%), Tech up 1.3%, (on going AI momentum) Basic Materials up 1.3%, Industrials up 1%, Utilities up 1% while Real Estate advanced by 0.4%. That makes complete sense if you consider all of the sectors you need to build out more data centers.
The sectors that were most weak – Communications down 1.2%, Consumer Staples which lost 1% (which is very curious to me – under the circumstances), Consumer Discretionary – down 0.7%, Healthcare down 0.3%, and Financials down 0.1%.
Earnings today include (but not limited to) SEA, UAA, CSCO, CRWV, ETOR, AKAM, OKLO & RKLB and these companies represent Gaming/Fintech, Consumer Discretionary/Apparel, Enterprise Tech, AI infrastructure, Hyperscaler Capex, Data Centers/Retail trading, Crypto, Cybersecurity, Cloud, Nuclear Energy and Space/Defense. All very exciting.
Eco data besides the CPI includes Real Avg weekly earnings y/y and Real Avg hourly earnings y/y. We already got the NFIB Small Business optimism, and it came in at 95.9 – just a hair softer than the expectation of 96.1.
European markets are all lower – Germany down 1%, Euro Stoxx down 0.9%, Spain and Italy down 0.8%, France is down 0.5% while the UK is off 0.3%. The tone is directly tied to the fact that any resolution to the US/Iran conflict is becoming increasingly remote. UK PM Starmer is only hours if not minutes away from being ousted. Now Starmer told everyone to get over it, he is not resigning and the process for any leadership change has not been ‘triggered’. My guess is that he is out by the weekend.
US futures are lower…. Dow down 35 pts, the S&P is down 26 pts, the Nasdaq is down 225 pts, while the Russell is down 18.
Bitcoin is trading at $80,500, Ethereum is at $2,300 while Solana is trading at $94.20.
S&P closed at 7412 — up another 14 pts and pushing us into another new century mark. Remember, we pierced 7300 on May 6th and now just five trading days later we’ve already blown through 7400. Not sure about you, but the pace of this move is beginning to feel a bit frothy to me.
And listen — that doesn’t mean the market can’t go higher. Momentum has a way of feeding on itself, especially when the AI trade becomes the only game in town. But when indexes start ripping through 100-point milestones in a matter of days while participation narrows, call option activity explodes, The VIX creeps higher, Yields kiss the ‘danger zone’, inflation remains front and center, and the geo-political drama remains HOT – you have to at least acknowledge the risks.
I’m not chasing just anything tech up here. Why? Because I own it already — and I’m happy to let it ride. But I’m also not blindly throwing new money at names that have become priced for absolute perfection. Because at some point expectations get so elevated that even great news becomes disappointing.
Now, there are always other areas of the market that are not nearly as extended and that may offer long-term opportunities, areas where valuations are more reasonable, sentiment is less euphoric and investors aren’t all crowded onto the same side of the boat.
Call me at 561-931-0190 and let’s talk about how SlateStone Wealth can help you navigate all of this and reach your goals.
Take good care,
Kp
[email protected]
Source: Bloomberg, CNBC, Reuters, Wall Street Journal
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Baked Cod with Lemon, Wine and Capers.
You need: 4 cod filets, s&p, butter, olive oil, juice of one lemon, capers, garlic and of course some white wine.
Preheat your oven to 425 degrees.
Season the filet with s&p – place in a greased Pyrex baking dish.
Make the sauce – whisk the melted butter, olive oil, lemon juice, chopped garlic and white wine.
Pour the sauce over the fish – top with capers.
Bake for 10 – 12 mins (max). …..covered.
When done, serve with fresh lemon slices…and a veggie of your choice.
Buon Appetito