Things you need to know.
- BEA says GDP is -0.3% while others say – NOT SO FAST.
- ADP Weak, Mortgages Weak
- Pers Income/Spending Strong
- PCE (inflation) DECLINES
- META Crushes it/MSFT Smashes it!
- AAPL and AMZN after the bell
- Try the Sicilian Cod.
Here is all you need to know:
“The best investors in the world are really good at doing nothing for long periods of time.”
Think – Uncle Warren Buffet – the Oracle of Omaha, Peter Lynch – Growth Guru, Dan Payne – Wisdom Architect, Benji Graham – Father of Value Investing, John Templeton – Global Visionary.
And just like that – stocks sold off on the back of what was perceived as a weak GDP report.
1st qtr. GDP came in at -0.3% – ok 0.1% worse than the estimate but it wasn’t like we didn’t know it was going to be negative…..Although, you can make an argument that the report is deficient and misleading….…. The BEA report highlights a significant 4.83% drag from net exports, driven by a record 41.3% spike in imports (which is subtracted from GDP) due to preemptive importing ahead of anticipated tariffs, and that creates a misleading headline figure of -0.3% growth.
Now Larry Kudlow makes it quite clear in his daily ‘riff’. You can find it here:
https://x.com/DavidAsmanfox/status/1917706352413024406
(In fact, I will be on Varney & Co at 9 am – discussing this very report with David Asman)
In it he points out what is wrong with this report – and that when you pull back the sheets – what you really find is very strong growth of +3%….and if you look deeper into the numbers it gets even better….Private business investment is up while gov’t spending is down – business investment increased by 10% (annualized) and even better business equipment and machinery – which Larry points out is an ‘incredibly important harbinger of productivity’, of job increases and real wage hikes – rose an incredible 22.5%…and that suggests NO recession…..and for the entire report THAT 22.5% is the single most important number…..
He goes onto say that Trump’s ‘One Big Beautiful Bill’ will pass both houses of Congress by July 4th – and that Trump has said repeatedly that he will give business investment and factory investment and building a 100% immediate depreciation write off plus all of this will be retroactive to January 20th…. So, in the end, this is not a negative story at all quite the contrary.
And if that isn’t enough – Domestic final sales, a cleaner gauge of economic activity, remained robust at 3.0%, and inventory accumulation added a 2.3% positive offset. This suggests the economy’s core demand—particularly from households—was stronger than the headline implies. So, for all of those screaming RECESSION – I have to say – not so fast big boy…..grab ahold of yourself……
And then we got the latest ADP Employment report and that was significantly WEAKER than expected at 62k new jobs vs. the 115k we were expecting (that was a bit of a surprise – or maybe not as it shows caution by employers rather than chaos) …Mortgage Apps WEAK at -4.2% (again no surprise, housing prices need to decline – we’ve discussed this as well).
Personal Consumption was STRONGER than the estimate 1.8% vs. 1.2% (Americans are spending $), Personal Income BETTER than expected at 0.5% vs. 0.4% (Americans are making $), Real Personal Spending also BETTER than expected at +0.7% vs. +0.5% (again Americans are spending $).
And then the most important metric – the PCE report….JJ’s favorite data point….and that was also BETTER than expected……showing inflation is coming down – not going up….and that follows the latest CPI and PPI reports we got earlier this month….so again – it’s a mixed bag…
Yet, the algo’s found it necessary to go ‘all in on sell mode’…..Why? Well first because we had 5 consecutive UP days, so they needed a reason to hit the sell button to help the trader types of lock in some short-term profits also known as creating alpha. And two – because of all the simmering angst surrounding the release of earnings from both META and MSFT (both killed it! – but more on that below) while we await AMZN and AAPL tonight.
To “create alpha” in finance and investing refers to generating returns that exceed the expected return of a portfolio or investment, given its level of risk, as measured by a benchmark (like the S&P 500). It is often associated with active investing where managers aim to outperform the market by trading around core positions.
In any event – stocks remained negative for most of the day (at some points during the day – really negative) causing the usual suspects to jump up and down lighting their hair on fire….. Now, the nervousness remained elevated right up until the final moments of trade where we saw them give it the ‘ol college try’ – making a sincere, spirited effort to push stocks into positive territory. And by the time the bell finished ringing – stocks moved into the ‘win column’ – here is what it looked like – the Dow +141 pts, the S&P up 8 pts, the Nasdaq -15 pts, the Russell – 12 pts, the Transports up 64 pts, the Equal Weighted S&P up 38 pts while the Mag 7 Index lost 250 pts.
While the rally at the end of the day was good, you could have cut the air with a knife….it was so thick – as the clock ticked in the moments after the close…..as we awaited the results from the first two Mag 7 names….META & MSFT. And remember what I said –
Expectations are for generally strong results, and if these guys were going to disappoint – they would have ‘pre-announced by now’.
Now META …reported a 16% rise in revenues – $42.3 bill handily beating the $41.4 bill estimate, EPS of $6.43 (estimate of $5.21), beating both top and bottom lines 9 straight qtrs.……Operating margins 41% – up from 38%, they are going to spend MORE money on capex…so that they can be the ‘King’ of AI…..(do we really want Marky to be King?). And as usual, the algo’s that SOLD it all day long taking the stock down 1% by the end of the day – went BONKERS in the after-hours mkt – taking that stock up 5.2%…to $576.75 and this morning it is up another 8 pts at $584.90.
And then MSFT – surged in the afterhours – up 6.2% on BOOMING cloud growth after smashing estimates, EPS of $3.46 vs. estimates of $3.22 with earnings up 18% on sales up 13%….Revenues up 13%, Operating Income at $32 billion was 6% above the most optimistic estimate, while cloud revenue leapt 32%. Capex spending at $21.4 billion was $1 billion less than expected – but KEY units surpassing all the guidance was KEY! Intelligent Cloud business was up 21%, Personal computing business up 6%, Productivity and Business processes went up 10%…and they took it up $23 to $418.55 in the after-hours and this morning it is up another $10 at $428.50.
Shall I go on? Didn’t think so…. but watch AAPL and AMZN at 4:05 pm tonight.
Now just to help you understand – let’s just take a look at the 11 sectors and how they are performing vs. the benchmarks for the year. Dow – 4.4% ytd, S&P down 5.3% ytd, Nasdaq – 9.6% ytd, Russell – 12% ytd – and while these indexes are negative – they have rebounded from significantly from mid-April.
4 of the 11 sectors are negative ytd – while 7 are positive. Consumer Staples +6.5%, Utilities + 5%, Healthcare + 2.6%, Real Estate + 2.3%, Financials +1.3%, Basic Materials + 0.6% while Industrials are flat (which is a win), leaving Energy – 4.8%, Communications – 5.5%, Information Tech – 11.2% and Consumer Discretionary – 14.1%.
If you go further down the chain – you’ll find more weakness – Homebuilders – 9.8%, Airlines – 21%, Retail – 13%, Disruptive Tech – 10.5%, Semi’s – 14.5% but you’ll also find more strength – Big Pharma + 4.5%, Cybersecurity +4.5%, Emerging Markets + 4.6%, Aerospace &n Defense + 3%, etc.
In addition, bonds are up ytd – the TLT + 2.4%, TLLH +3.1% while the AGG is up 2.2%. Gold is up 24% ytd, Silver is up 12.5% and all this shows you is why you need to be diversified.
As bonds rise, yields continue to decline…the 2 yr is now yielding 3.59% while the 10 yr is yielding 4.14%.
Gold? Recall what I said yesterday – A break below $3300 – will take us to $3200 fairly quickly. (trendline support is at $3,100) And if those hyper-scalers report what I think they will – Gold will see $3200 before the ink dries….and this morning – Gold is down $90 trading at $3,228…You can thank those Hyper-scalers!
Oil which has been tumbling – is down another $1.40 or 2.5% – trading at $56.75 – now down 24% since January 20th. $55 oil is now in the bullseye……and if we fail to hold that – we’ll get to $50 in the blink of an eye….
This morning US futures are on FIRE after dissecting & digesting all of the economic data, coupled with the META and MSFT results …..Dow futures +350 pts, S&Ps are up 80, Nasdaq is surging by 350 pts, and the Russell is up 9 pts.
Eco data today includes Challenger job cuts, Initial and Continuing Jobless Claims (expected to be flat), S&P and ISM Manufacturing PMI’s one expected to be expansionary while the other is expected to be contractionary, ISM Prices Paid – expected to be a bit higher, Construction Spending +0.2%.
We will get another 40+ Earnings this morning including: XRX, HSY, D, RBLX, SHAK, IRM, MRNA, LLY, APD, SO, EL, CVS, PH, X and they represent Consumer Electronics, Packaged Foods, Integrated Electric Utilities, Video Games, Restaurants, Specialty REITS, Bio-Tech, Big Pharma, Diversified Chemicals, Personal Care, Health Care Supply Chain, Diversified Industrials and Steel Producers.
Right out of the gate – CVS tops the estimates and ‘hikes forward guidance’ saying the insurance business shows improvement and just like that – it’s up 8% in the pre-mkt…trading at $72….
And after the bell – we will get 20+ more – but the ones that everyone is watching is AMZN and AAPL – others include EOG, ROKU, LUMN, AMGN, AIG, GDDY and they represent Exploration & Production, Film & TV, Wireline Telecommunications, Bio-Tech, P&C Insurance and Internet Media & Services
European markets are closed for May Day. UK is flat.
In other news – the US and Ukraine have signed the Rare Earth Minerals Deal and that is significant for both geopolitical and economic reasons. It is strategically important for reducing China’s dominance and supporting Ukraine’s post-war recovery, but its practical impact is constrained by outdated data, war-related risks, and long development timelines. It’s less about immediate economic gains and more about long-term geopolitical positioning.
The S&P closed at 5,569 up 8 pts…Futures are pointing to a RISK ON day….and while we will get more eco data and a basketful of earnings data – all eyes are focused on the 2 A’s.
Expect more excitement as we repair the damage we sustained over the past month, stick to your plan and remain resilient. 5602 is now short-term trendline resistance and it appears as if we will blast right thru that by 9:30:35 – Intermediate trendline resistance is up at 5750 – not an impossibility at all considering all the excitement…. Hold on…..the ride is just beginning……. Feel free to call me 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.
Atlantic Cod – Served Sicilian Style
This dish is easy to make – it will tease your senses – and tickle your pallet – only takes about 15 or 20 mins to prepare and 20 mins to cook… enough time to set the table, pour the wine, light the candles, put on the music and dim the lights…
For this you need: Raisins, green olives, capers, pignoli nuts (pine nuts), tomatoes, garlic, onion, s&p, olive oil and Cod.
**Preheat oven to 400 degrees (f).
Season the cod with s&p.
Next, soak the raisins in warm water for about 1/2 hr.… drain and set aside.
Heat the olive oil in a sauté pan on med high heat… sauté the diced onion and crushed garlic until soft. Do Not Burn. Maybe like 5 / 8 min’s… add raisins, diced tomatoes, chopped olives (no pits!), and capers – like 1 tblspn. (If you like capers feel free to add a bit more – but not too much as the taste will overpower the dish). Reduce heat to simmer and cover… stirring occasionally… for about 15 min’s or so…
Place the cod in a baking dish and cover the fish with the raisin/olive/caper/tomato mixture – bake for 15 min’s or until it flakes…. (depends on thickness)
Present the fish on a warmed plate with steamed green beans and a large mixed green salad with red onions, cucumbers, maybe some fresh mozzarella… dress with s&p, oregano, a splash of fresh lemon juice and olive oil.
Buon Appetito
