The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Back to basics.
Trump increased steel and aluminum tariffs over the weekend and the destruction of bombers in Russia by Ukraine increased investors nervousness. Overseas markets reflected the risk-off aspect of the weekend, perhaps a rush to profit-take was at work as well, considering that global equity markets had quite a bullish May. S&P 500 futures were off 30 points in the premarket and recovered as the opening bell neared. The index opened down maybe 7 points and fell hard after some disappointing macro data at 10. The usual players made the usual plays and the S&P was flat by 1 PM. Later in the session the index went significantly positive and bulls controlled the tape into the close. Yields swung from lower to higher over the session and the market hasn’t moved it’s Fed cuts much, expecting 51 bips of cuts for the year now.
The news of the weekend and the day was rejected by US equities. Whether the worries of Asian and European investors have merit, US investors did their own thing and bought the dips while they could. Mag 7 stocks continue to be the belle of the ball although Alphabet and Tesla dropped today. It appears that US investors, whether influenced by retail or not, has an insatiable appetite for Mag 7 stocks. Excepting Microsoft, the Mag & names are well off their all-time highs, so investors perceive current prices as bargains because they project new highs for both the S&P 500 and the Mag 7. The logic goes that Mag 7 generated the index returns for the past few years and they will do so for the next few.
It's hard to argue with that too.
Anyway, after a big gain for the S&P in May, investors want to keep the party going instead of paring back exposure. We have nonfarm payrolls (+130k est vs +177k prior) on Friday as the big data item on the horizon. I think most investors assume that we are through the worst of the economic turbulence and that whatever the number is, it will be bullish.
I expect the bulls to run until/unless NFP ends up being a fly in their ointment.
See you tomorrow.
-Mike
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