The Morning Call
5/26/26
I am on vacation for the rest of the week. See you next Monday.
The
Market
Technical
There
is just no quit in this Market. The S&P was up for the week (again). The technical remains full steam ahead with
the S&P (1) above all three DMAs and (2) in uptrends across all timeframes.
The technical question for this week is, will the S&P make another new high?
As you know, I
approached this upside move cautiously---which couldn’t have been more wrong.
Nonetheless, I am loath to chase this upswing, especially with three gap up
opens sitting below and the bond market performing poorly. The only good news
in this trading error is that a number of stocks on my Buy List have remained
within buying parameters. So with any retreat, I can make a delayed entry.
A stock price melt up---maybe; an earnings explosion---definitely.
https://www.zerohedge.com/the-market-ear/ai-melt-bubble-maybe-earnings-explosion-definitely
Summary: With equities already trading at record highs, the instinctive
reaction is that much of the good news must already be priced in. But a closer
look at earnings revisions, corporate guidance, dividends, M&A activity and
liquidity trends suggests the backdrop is not just bullish — it is unusually
bullish. The flip-side of this is of course that expectations are now extremely
elevated — meaning even small disappointments could matter more than usual.
I thought that I would
give you a long term view of the long bond market. Despite last week’s bounce, TLT is now below
all DMAs and in downtrends across all major timeframes. With stagflation the
likely result of the destruction wrought on the oil infrastructure and a
spendthrift government, I am hard pressed to think that bond prices are going
to improve markedly. The only question
is when, as and if it impacts equity prices.
Gold continues to
behave poorly in the short term; although it is not surprising given the steady
rise in bond yields. So, it remains in a
very short term downtrend marked by the top and now three lower highs. I am
watching to see if it makes a new lower low (it did make a lower low for one day
and then recovered).
The dollar meandered much of the
week but still reset both its 50 and 200 DMAs to support. Technically the
dollar is in a bit of a no-man’s land. Nonetheless, I continue to believe that the
macroeconomic backdrop of the US economy (rising inflation) suggests a low to
lower dollar.
Friday in the charts.
https://www.zerohedge.com/markets/warsh-waller-war-worries-sends-rates-stocks-highs-long-weekend
Summary: Yet more
US/Iran/Pakistan headline roulette running the show today ahead of a
long-weekend with consumer sentiment at record lows as stocks test record
highs. Oil down, stocks up (8th straight week), but short-end yields
up on the week (yield curve flattening) thanks to Fed Waller's flip-flop
today (trumping Warsh's swearing-in). The dollar and gold ended the week
largely unchanged while bitcoin tumbled near one-month lows. Market sentiment remains
resilient - almost defiant - as markets want to lean into hopes of a
US-Iran de-escalation and chase a broader (AI-based) risk rally... As Bloomberg
macro strategist, Brendan Fagan wrote, the dominant theme this week was
the market’s willingness to aggressively price a resolution to the war that
steadfastly hasn’t emerged yet.
Friday 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
Tuesday morning
setup: US futures are higher again, led by tech and small caps. As of 7:30am,
S&P 500 futures rose 0.7%, signaling US stocks are set for another record
high when the market reopens after Memorial Day weekend. Nasdaq 100 contracts,
supercharged by the artificial intelligence trade, gained more than 1% as
Magnificent Seven big tech shares rallied in premarket trading. In premarket
trading, all Mag 7 are higher led by NVDA (+0.8%), TSLA (+0.8%) and GOOG/L
(+0.7%). 10-year Treasury yields fell six basis points and the dollar was
steady after dropping against major peers in the previous session. Europe’s
benchmark Stoxx 600 index slipped, handing back some of Monday’s 1%
advance. Brent trading below $100 on hopes of deescalation between Iran and the
US. Yet even though we have seen a barrage of optimistic media reports
regarding progress on the US-Iran negotiation; on Monday night the US conducted
"defensive" strikes on Iranian military targets, which the Iranian
foreign ministry moments ago condemned as ceasefire violations. Gold
and silver are both lower this morning, falling 1.0% and 2.5%, respectively;
Ags are mostly lower. Today's economic data slate includes the April Chicago
Fed national activity index and May Philadelphia Fed non-manufacturing activity
(8:30am), March FHFA house price index, S&P Cotality home prices and FHFA
1Q house price purchase index (9am), May consumer confidence (10am) and May
Dallas Fed manufacturing activity (10:30am).
Fundamental
Headlines
The
Economy
The
US stats last week were parse but balanced with two positive price indicators. Overseas, there was an abundance of data which
was also balanced as were the inflation measures (three plus, one neutral,
three minus).
Despite
the ever louder narrative of rising inflation, last week’s numbers don’t bear
it out. As you know, I am very much on
board with that narrative, but the hard stats are only just hinting at it. That said, the bond market is shouting higher
inflation. And as you also know, I put a
lot of credence in the bond market’s message.
So, I stand pat on the higher inflation forecast.
https://www.capitalspectator.com/headline-inflation-surges-but-core-measures-keep-the-fed-on-hold/
On
the other hand, the economic growth in the US remains on track with only a
smattering of data points suggesting otherwise.
However, if oil remains near current levels and bond yields continue to
rise, Trump’s insistence on lower rates notwithstanding, I don’t see how the
Fed can avoid tightening monetary policy and that historically opens the
possibility of an economic slowdown at the least. Coupled with the deteriorating numbers in the
rest of the world, we need to be alert to a possible economic downturn. I am not there yet and likely won’t be until
the Fed shows me it has some cojones.
Bottom
line: the economy is performing well and will likely continue to do so at least
in the short term, given (1) US energy independence, and (2) the level of AI
spend. On the other hand, I remain firmly convinced that above average
inflation is part of our near/intermediate term future.
US
The March Case
Shiller home price index rose 1.0% versus predictions of +0.4%.
The
April Chicago Fed national activity index was +0.14 versus consensus of -0.3.
From Friday afternoon:
The April leading
economic indicators were up 0.1% versus projections of -0.2%.
May consumer sentiment
came in at 44.8 versus estimates of 48.2.
https://econbrowser.com/archives/2026/05/u-mich-sentiment-gallup-confidence-plunge
International
The March Japanese
leading economic indicators came in at 114.0 versus expectations of 114.5.
Other
The most and least
affordable states for families.
https://politicalcalculations.blogspot.com/2026/05/which-us-states-are-most-and-least.html
Home prices continue to fall.
The calm before the oil price shock.
https://talkmarkets.com/article/oil-at-100-calm-before-the-supply-shock-1779454084
Iran
Overnight news.
Monetary
Policy
The
problem with monetary policy.
(3)
The Devil Neither Political Party Will Name
Inflation
El Nino is coming for the crops.
https://giftarticle.ft.com/giftarticle/actions/redeem/44e80dde-80fd-4994-a9f0-4188f8d0a900
Regional Fed reports indicate continuing inflation
impulse.
https://bonddad.blogspot.com/2026/05/preliminary-regional-fed-reports.html
Investing
Here is why rising bond yields haven’t hurt
the stock market….yet.
On a positive
note.
https://talkmarkets.com/article/pmi-and-the-yield-curve-correlation-1779456675
The latest from BofA.
https://www.zerohedge.com/markets/hartnett-biggest-bubble-railroads-wait-2-things-happen-selling
Summary:
Hartnett agrees with our cynical view that selling is premature until
the SpaceX/OpenAI IPOs price (the banks will simply not
allow a crash before they happen as they would lose on billions in
fees), and investors should wait for 2 things to happen before selling,
to wit: "no one is cutting longs in stocks i) before historic IPOs
and ii) big top Policy tightening which will come after CPI hits 4-5% in the
coming months" which has historically preceded major
market drawdowns
News on Stocks in Our Portfolios
What
I am reading today
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