5/5/25
The Market
Technical
WOW! A second week of healthy price (upward) movement.
The S&P pushed through and confirmed a reset of its 50 DMA from resistance
to support and is now eyeing a challenge of its 200 DMA. If that proves successful,
then what would really cement a change of momentum would be the 200 DMA
crossing back above the 100 DMA. Failure to do that would just leave the index
in a rally in a bear market. Follow through.
The latest rom Goldman’s trading desk.
Upside massively underpriced.
https://www.zerohedge.com/the-market-ear/goldman-upside-massively-under-priced
The long bond gave up most of its gains from the
prior week. In doing so, it made a lower high while testing and then failing a
challenge of both its 50 and 100 DMAs (they remain resistance). That negates any thought that it had made a
firm bottom on January 14th and raises the strong probability that
it will retest that low. I am a bit
perplexed at the divergent pin action of stocks versus bonds. I recognize that
an end to the tariff chaos would suggest a strong economy (i.e., higher earnings
growth and stock prices) and a more hawkish Fed (i.e., higher rates). But ‘an
end to tariff chaos’ seems like a push right now. That and the fact that I have
always trusted the bond market’s discounting ability over that of the equity
markets, I view TLT’s performance as a warning sign for stocks.
GLD continued to consolidate after hitting new
highs. However, there is nothing extraordinary about this retreat. It
remains well within a very short term uptrend and in uptrends across all other
time frames as well as above all DMAs. Let’s see where the correction goes but for
the moment, I would stay with what works.
The dollar inched a little higher last week though
it remained solidly in a downtrend. Its performance only adds to the disparate
pin action in the stock, bond, and gold markets. But since the moves in the
latter two were fractional and my uncertainty level well above average, I am
writing this all off to randomness and/or confusion.
Dollar doom is overdone.
https://www.ft.com/content/6274a96c-f11d-49a0-aac8-25371376e67d
Friday in the charts.
Friday in the technical stats.
https://www.barchart.com/stocks/momentum
https://www.barchart.com/stocks/sectors/sectors-heat-map
Fundamental
Headlines
The Economy
Last week, the stats overall were horrible (bad
overseas, really, really bad in the US) though the primary indicators were
almost balanced (three up, four down). So a third week in a row of downbeat
data. This puts us back on the track we just got off of a month ago---the
increasing likelihood of recession (versus ‘muddle through’).
And as you know from the articles I have been posting,
there are far rougher times in our near future (i.e., the impact of Chinese
tariffs working their way through our supply chain---first the ports, then the
trucking, then the retailers).
Just not yet.
https://econbrowser.com/archives/2025/05/employment-and-business-cycle-indicators-2
The good news I suppose is that the level of tariff
bombast from Trump has fallen significantly; although to date there has been
only token real results from the Donald’s actions.
One of the aforementioned negative primary
indicators was inflation related. That too is probably only going to get worse---what
is about to occur is very similar to what happened with the covid affair and I trust
you remember that outcome.
At the risk of being repetitious, I don’t
fault the Donald for working to right some trade imbalances. But so far, I would
judge the ‘art of the deal’ to be a f**king disaster; and unfortunately, likely
a longer term negative (1) for our relations with our allies and (2) in his
ability to implement his domestic agenda [which I believe would be a major plus
for the economy].
The $64,000 question is how much of the above is in
the price of stocks? On the plus side, nothing I have said is an unknown. On the
other hand, the bond market has not been nearly as sanguine about the prospects
for ‘muddle through’ and slowing inflation. You know how much more I respect
the bond boys discounting abilities versus the stock jockeys.
Bottom line. Short term, the odds of recession appear
to be on the rise again. It is not much better longer term as Trump’s self-induced
chaos will only hamper economic growth. At the risk of being labeled ‘wish
washy’, if this week is as bad as last, economically speaking, I will likely
pull my ‘muddle through’ forecast---again. I am less sure about inflation and I am
leaving that prediction in abeyance pending more clarity.
US
International
Other
YoY heavy truck sales unchanged in April.
https://www.calculatedriskblog.com/2025/05/heavy-truck-sales-mostly-unchanged-yoy.html
Monetary Policy
Odds
of a June rate cut plunge.
https://mishtalk.com/economics/june-fed-rate-cut-odds-plunge-on-strong-jobs-report/
Update
on the Fed’s balance sheet.
Fiscal Policy
The
never ending tale of waste and fraud.
Inflation
Global
food prices up.
Tariffs
This is a great must read article on why we
can’t (and therefore won’t) bring the lion’s share of manufacturing back to
America and what we could do to make the right kind of manufacturing easier.
https://www.molsonhart.com/blog/america-underestimates-the-difficulty-of-bringing-manufacturing-back
China
is hurting too.
Geopolitics
Peace
in Ukraine inches closer.
https://www.zerohedge.com/geopolitical/zelensky-relieved-trump-quietly-dropped-key-demand
Investing
April dividends by the numbers.
https://politicalcalculations.blogspot.com/2025/05/dividends-by-numbers-in-april-2025.html
Update on valuations.
https://www.advisorperspectives.com/dshort/updates/2025/05/01/qratio-market-valuation-april-2025
https://www.advisorperspectives.com/dshort/updates/2025/05/01/pe10-market-valuation-april-2025
In praise of diversification.
https://www.advisorperspectives.com/commentaries/2025/05/02/diversification-versus-sirens-song
The consumer pullback theme gains momentum.
https://www.zerohedge.com/markets/peak-earnings-pulse-consumer-pullback-theme-gains-momentum
News on Stocks in Our Portfolios
Paychex (NASDAQ:PAYX) declared $1.08/share
quarterly dividend, 10.2% increase from prior dividend of
$0.98.
Cummins press release (NYSE:CMI): Q1 GAAP EPS of $5.96 beats by $1.11.
Revenue of $8.2B
(-2.7% Y/Y) beats by $30M.
What I am reading today
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