The Morning Call
5/20/26
The
Market
Technical
Tuesday in the
charts.
Summary: he acceleration of
UST yields (to 19 year highs) briefly broke the spell of AI
Capex today (there's still a lot of questions about supply)
sending stocks lower (AI/Semis/Momo worst), but 0-DTE traders stepped
in to put some lipstick on the pig of a day after Europe closed (but
stocks ended lower). Oil was up from last night's lows (but
below yesterday's highs). Bitcoin bounced back from early ugliness as the dollar
raced back above its 200DMA (six week highs) dragging gold
lower. Gotta keep the dream alive for one more day into NVDA earnings (or
SpaceX IPO)... .but it's getting harder to ignore the red in bond-land...
Tuesday in the
technical stats.
https://www.barchart.com/stocks/momentum
https://www.barchart.com/stocks/market-performance
https://www.barchart.com/stocks/sectors/rankings
https://www.barchart.com/stocks/signals/new-recommendations
Upside panic;
nobody wants protection.
https://www.zerohedge.com/the-market-ear/upside-panic-nobody-wants-protection
Summary:
Volatility looks dead if you only stare at the VIX. Underneath the surface,
however, the market has quietly become one of the most aggressively
upside-chased and concentrated setups in years, with investors relentlessly
piling into MegaCap AI upside calls while downside hedging keeps collapsing. The
setup is starting to resemble late-90s Nasdaq behavior, where FOMO kept
overpowering rising yields and macro concerns. Nomura warns the market has also
become increasingly fragile beneath the surface, as leveraged ETF buying and
aggressive call chasing create a highly asymmetric downside setup if SPX
suddenly breaks lower. The market looks calm for now, but once SPX finally
breaks lower, the same upside-chasing flows could rapidly flip into forced
selling and a violent vol event.
Wednesday morning
setup: US equity futures are higher led by tech as the selloff in bonds eased
and traders awaited earnings from Nvidia after the close. As of 7:30am ET,
S&P futures are up 0.3% while Nasdaq futs rose 0.7% showing optimism
heading into the release and overlooking weakness in tech during APAC
trade. In premarket trading, NVDA is up 1.8% in premarket trading, as semis see
a strong bid with Mag7 names almost all higher. Cyclicals ex-Energy are
rallying led by Industrials with Defensives lagging and Staples down. European
stocks have edged higher alongside a pullback in energy prices, which saw Brent
briefly slip onto a $108/bbl handle. Today is all about NVDA but Fed Minutes
this afternoon may provide color on the dissenters from the previous Fed Day.
Bond yields in the US and Europe retreated from multiyear highs as
traders pared back aggressive bets on interest-rate hikes this
year. US yields are 1-3bp lower across the curve, the 10Y dropping to
4.64% from yesterday's high of 4.69%, as the USD sees a mild bid. Brent fell
1.8% toward $109 a barrel with the broader energy complex drops as JPM flags
6.6mm bbls of oil crossing the SoH over the last 24 hours; Precious Metals are
also bid with Ags seeing weakness. Tomorrow’s macro releases include Flash PMIs
and jobless data.
Fundamental
Headlines
The
Economy
US
Weekly mortgage
applications declined 2.3% while purchase applications were off 4.0%.
Month to date
retail chain store sales were up 8.1% versus up 9.6% in the prior week.
April
pending home sales rose 1.4% versus forecasts of up 1.0%.
International
April German PPI
rose 1.2% versus projections of +1.0%.
April
UK CPI was +0.7% versus estimates of +0.9%; core CPI was +0.7% versus +0.8%; the
April retail price index was +0.7% versus +1.4%; April PPI output
was +1.4% versus +1.0%.
April EU PPI was up 1.0%, in line.
Other
Auto loan balances and delinquencies.
‘Misery index’ signals growing economic pressure.
https://www.capitalspectator.com/rising-misery-index-signals-mounting-economic-pressure/
Overnight
News
The Trump
administration is planning to tell NATO allies this week that it will shrink
the pool of military capabilities that the U.S. would have available to assist
the alliance's European nations in a major crisis, three sources familiar with
the matter said.
Two giant Chinese
tankers laden with around 4 million barrels of oil exited the strait on
Wednesday, the latest signal that Iran is willing to ease its blockade for
countries it considers friendly. Iran had announced last week, while Trump was
in Beijing for a summit, that it had reached an agreement to ease rules for
Chinese ships.
India is preparing
to send vessels through the Strait of Hormuz to load energy cargoes from Middle
East suppliers, the first time since the Iran conflict began.
Iran
Iran now has more incentive to resist US
demands.
Fiscal
Policy
The deficit and debt without the OBBB.
https://econbrowser.com/archives/2026/05/deficit-debt-w-o-the-obbba
China
China’s rare earth advantage is still growing.
https://talkmarkets.com/article/trump-xi-summit-chinas-rare-earth-leverage-is-growing-1779189928
Investing
Sell signal triggered
by latest BofA Managers Survey.
Summary:
With stocks levitating in a straight, diagonal line from the post-war bottom in
late March - a move driven entirely by an offside positioning and a historic
squeeze in a handful of memory, chip and AI stocks on hopes that trillions in
debt-funded capex will magically trickle down in perpetuity to feed an AI beast
whose return on invested capital still remains a giant mystery - it will
probably not be a surprise to anyone that Bank of America's latest Fund Manager
Survey (available
here for pro subs) reveals a record rise in equity allocation
among Wall Street's investment professionals... which has pushed
total equity allocations to the highest since January 2022... According to Michael
Hartnett, who published the monthly survey (which took place between the 8th
and 14th of May and polled 200 panelists with $517BN in AUM), the BofA Bull
& Bear Indicator is now right back to 7.8 (effectively triggering
the bank's broadest “sell-signal” - recall the last time this was
triggered was
in December and marked the peak for the S&P until the most recent
meltup).As Hartnett recaps the results of the survey: the bull
capitulation is almost complete, and early June is now ripe for
profit-taking, with bond yields set to determine the degree of pullback (as
we noted
earlier, with the 30Y hitting a fresh 17 year high, the degree is looking
quite big).
The bond market is
becoming stocks’ biggest problem.
https://www.zerohedge.com/the-market-ear/bond-market-becoming-stocks-biggest-problem-again
Summary:
One of the market’s most important relationships has abruptly shifted. As
Treasury yields surge toward post-crisis highs, equities are increasingly
reacting like they did in prior inflationary eras: higher yields are no longer
a sign of growth optimism — they are a problem.
The bond market causing
problems for investors.
Summary:
A surge in longer-maturity US Treasury yields is testing the resolve of global
bond investors torn between the possibility of locking in the rates near the
highest levels in decades and the risk of an even greater selloff. Some
strategists, including those at Barclays Plc and Citigroup Inc, are warning
clients that Treasury 30-year yields may breach 5.5%, levels last seen in 2004.
The head of BlackRock's research unit is recommending investors reduce their
exposure to developed-market government bonds, including Treasuries, in favor
of equities.
Those who fail to remember the past are
doomed to repeat it.
https://alhambrapartners.com/weekly-market-pulse-chokepoints/?src=news
A split screen environment for investors.
https://www.morningstar.com/markets/markets-brief-echoes-1999-latest-ai-stock-rally
Priced for perfection.
https://mailchi.mp/verdadcap/priced-for-perfection?e=d672c968ec
The correction
risk.
https://giftarticle.ft.com/giftarticle/actions/redeem/dad2546b-ed22-4a3f-95ca-97a4b131fc21
The Market waits
for no one. While the author may have the current math correct, he fails to
mention (1) those promising earnings are estimates---what is the likelihood
they could be wrong, and (2) what one does when valuations are growing faster
than earnings.
https://www.tker.co/p/stock-market-valuations-down-prices-up
Berkshire trolls AI by buying Macy’s.
https://www.zerohedge.com/markets/berkshire-trolls-ai-bubble-buying-macys
The outlook for
dividends in May.
https://politicalcalculations.blogspot.com/2026/05/the-outlook-for-s-500-dividends-in-may.html
News on Stocks in Our Portfolios
What
I am reading today
There
is no growth without risk.
Summary: Edmund Phelps, who died at the age of 92,
viewed growth as necessary but not sufficient for prosperity and flourishment,
and as messy and complicated. Phelps believed that innovation can come from
anyone, in any field, and that it requires embracing uncertainty, tolerating
failure, and accepting some inequality. The US economy's success is attributed
to its ecosystem, which includes bankruptcy laws and corporate business
structures that allow entrepreneurs to take risks and try again after failure.
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for Survival’s website (http://investingforsurvival.com/home)
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