Modest gains this past week after the massive reversal in markets upward the week prior. This coming week will all be about the Federal Reserve and the word “patience”. That simple word alone drove the market up well over 20% since the December lows. After a selloff, the Fed came to the rescue again a fortnight ago and now expectations are for a rate cut soon – most believe in July. So the removal of the word “patience” from the Federal Reserve statement this coming week will confirm rate cuts coming very soon to a theater near you!
“The market is willing to bet heavily on the Powell put,” Yousef Abbasi, global markets strategist at INTL FCStone, told MarketWatch. “We’re in a far more uncertain place, but if anything, the market has really shown its ability and wherewithal to place a bet on the strength of the Fed put.”
The Chinese – U.S. trade deal has been put on the backburner after leading the markets for months as it’s all Powell saving the market!
Economic news was sparse but it is worth noting retail sales, which rose 0.5% in May, slightly below the 0.7% gain expected by economists. More important was the revision of April sales, which the Commerce Department now says rose 0.3%, versus the previously estimated 0.2% decline.
With all the giddiness about the Federal Reserve riding to the rescue of the markets as it has seemingly done non stop since the Alan Greenspan era, BeSpoke has a nice chart showing the relationship between an inverted yield curve (3 month v 10 year) and recessions.
Although it first briefly inverted (3-month yield greater than 10-year yield) in late March, the latest period of inversion that began on May 23rd has now stretched into its 15th straight trading day. Back when the yield curve first inverted, we made the point that a brief inversion of the curve would likely be an immaterial issue for the economy. However, the longer the inversion lasted, the bigger the potential problem would become as the impact on lending would become more pronounced.
To illustrate this, the chart below shows consecutive daily periods where the yield curve was inverted with recessions overlaid in gray. Looking at the chart, just about every recession was preceded by an extended period where the yield curve was inverted. Of the seven prior recessions since 1962, only one was preceded by a period where the curve was not inverted for at least 50 or more trading days. That one period was leading up to the 1990 recession when the curve was inverted for 30 trading days or twice the length of time as it has been inverted for now. Conversely, there has also only been one period since 1962 where the curve was inverted for more than 50 straight trading days and a recession didn’t follow (1967).
For the week, the S&P 500 gained 0.5% and the NASDAQ 0.7%.
Here is the 5 day weekly intraday chart of the S&P 500 … via Jill Mislinski.
The week ahead…
As noted earlier this coming week is all about Wednesday and the removal of one word from a statement – the entire world’s fate is at stake!! Federal-funds futures pointed to an 87% chance for a July cut and 26% chance for an easing this month, as of late Friday, CME Group data show.
“All eyes will be on this Fed meeting—especially the statement and the dot plot,” Kristina Hooper, chief global market strategist at Invesco said, referring to the plot of rate expectations by the members of the Federal Open Market Committee. “In other words, this Fed meeting is very important because market expectations have gotten so dovish recently,” Hooper said. “And with risks rising, many investors recognize that once again the Fed stands between it and a more trying stock market environment.”
Short term: These double tops are still intact for now – the minute indexes get back over those levels, they will have been eradicated.
The Russell 2000 is back into the range it has been stuck in since February.
The NYSE McClellan Oscillator is in black for the second week in a row, which is where bulls like to see it.
Long term: certainly better than where it was 2 weeks ago
Charts of interest / Big Movers:
Monday, Tableau Software (DATA) rallied 34% after the company said that it had agreed to be bought by Salesforce.com (CRM) in an all-stock deal that valued Tableau shares at $15.7 billion, or $177.88 each, a 42% premium to Friday’s close.
Beyond Meat (BYND) remains a remarkable story. After reaching nearly $200 a share (!!!!) the stock got hit by some downgrades on valuation. While I have been a big proponent of this sector from the moment of the IPO this is reaching NASDAQ 1999 or virtual currency circa 18 months ago silliness. Valuations make no sense, but until the speculation subsides it will be traders new plaything.
Wednesday, Dave & Buster’s (PLAY) tumbled 21.4%, after the operator of entertainment and dining venues reported Tuesday evening first-quarter sales and earnings that fell short of Wall Street expectations.
Speaking of speculation there was a time ocean shipping companies were as much of a fad to daytraders as tech stocks, virtual currency, pot stocks, and now fake meat stocks. DryShips (DRYS) shares jumped 23% Thursday after the cargo-ship operator said it received a buyout offer from SPII Holdings Inc., a company controlled by DryShips’ Chairman and Chief Executive George Economou.
New IPO Alert! First on Thursday, Fiverr International (FVRR) skyrocketed 90% to $39.90 after the gig-economy software company made its public debut. Fiverr, which makes software that links freelancers with companies that need projects, had priced its shares at $21 for its initial public offering.
Second on Friday, pet “e-tailer” Chewy (CHWY) surged 59% to $34.99 as they made their debut on the New York Stock Exchange. Pretty shocked Amazon never got around to buying this company to integrate into their ownership of half of all e-commerce. The stock’s first trade Friday was at $36, or 64% above the IPO price, at 11:03 a.m. Eastern for 6.1 million shares, then rose to a gain of as much as 88% soon after before paring some gains. Revenue gains year over year for this one are >60%. And subscription sales are >60% – that’s fascinating. 5 things to know about Chewy!
Have a great week and we’ll see you back here Sunday!