Markets Render All Time New High

10-year Yields Plumet!

KR Opinion

Yesterday's market reaction to the CPI news was notable. The CPI results aligned with expectations, and the decrease from the previous month was not surprising. However, the markets were ready for a rally, and they seized the opportunity, leading to new all-time highs in the S&P 500 and Nasdaq.

Our quant models anticipated this outcome, showing bullish patterns and algorithms. Additionally, the WaveTech Database closed the BBQ metric at 42%, indicating a positive rotation for the next 30 to 50 days. While this doesn't guarantee a continuous upward trend, it does suggest further positive movement within various sectors.

Retail sales came in slightly better than expected, and the previous month's data was adjusted to reflect a more positive environment. This stability in retail expenditure contrasts with the significant decline in the Empire State Manufacturing report, which showed a 15.9% drop.

This highlights the divergence between strong retail spending and weakening manufacturing output. Tomorrow's industrial output and capacity utilization reports will provide more insight into this bifurcation.

Looking Back on Wednesday Action

The S&P 500 (+1.2%), Nasdaq Composite (+1.4%), and Dow Jones Industrial Average (+0.8%) closed at or near their highest levels of the day, setting new record highs. This surge was driven by the April Consumer Price Index (CPI) report, which indicated disinflation.

The year-over-year total CPI decreased to 3.4% from 3.5%, and the core CPI fell to 3.6% from 3.8%. This came after three consecutive hotter-than-expected CPI readings and other reports showing persistent price pressures, raising concerns about the Federal Reserve maintaining restrictive policies longer than anticipated.

In response to the CPI data, market interest rates dropped significantly. The 10-year Treasury note yield fell by nine basis points to 4.36%, and the 2-year note yield declined by eight to 4.74%. This followed the April Retail Sales data, which indicated a slowdown in consumer spending.

Expectations for a rate cut increased after the data release. According to the CME FedWatch Tool, the fed funds futures market now shows a 75.3% probability of a rate cut at the September FOMC meeting, up from 65.1% the previous day.

Many stocks saw broad-based gains, with four S&P 500 sectors closing more than 1.0% higher, led by the information technology sector (+2.3%). This sector benefited from significant gains in semiconductor stocks, with standouts like NVIDIA (NVDA 946.30, +32.74, +3.6%) and Broadcom (AVGO 1436.17, +56.14, +4.1%).

Conversely, the consumer discretionary sector was the worst performer, closing nearly unchanged from the previous day. The April retail sales data suggested more cautious consumer spending on discretionary items, with losses in Tesla (TSLA 173.99, -3.56, -2.0%) and Amazon.com (AMZN 185.99, -1.08, -0.6%) contributing to the sector's underperformance.

Additionally, meme stocks experienced profit-taking after significant gains in recent sessions. GameStop (GME 39.55, -9.20, -18.9%) and AMC Entertainment (AMC 5.48, -1.37, -20.0%) saw sharp declines.

·S&P 500:+11.3% YTD

·Nasdaq Composite: +11.5% YTD

·S&P Midcap 400: +9.3% YTD

·Dow Jones Industrial Average: +5.9% YTD

·Russell 2000: +4.1% YTD

Reviewing today's economic data:

- Weekly MBA Mortgage Applications Index: 0.5% (Prior: 2.6%)

- April CPI: 0.3% (KR Forecast consensus: 0.4%; Prior: 0.4%)

- April Core CPI: 0.3% (KR Forecast consensus: 0.3%; Prior: 0.4%)

The key takeaway from the CPI report is that no negative surprises existed. Consumer inflation improved year-over-year, a crucial step for the Fed to consider a rate cut. However, the disinflation in April is still a small step toward the Fed's 2% inflation target, leaving the Fed in a watch-and-wait mode.

- April Retail Sales: 0.0% (KR Forecast consensus: 0.4%; Prior revised to 0.6% from 0.7%)

-April Retail Sales ex-auto: 0.2% (KR Forecast consensus: 0.2%; Prior revised to 0.9% from 1.1%)

The retail sales report indicates more cautious discretionary spending by consumers, consistent with anecdotal reports of weakening activity among low-income and middle-income consumers.

- May NY Fed Empire State Manufacturing: -15.6 (KR Forecast consensus: -9.0; Prior: -14.3)

- March Business Inventories: -0.1% (KR Forecast consensus: 0.0%; Prior revised to 0.3% from 0.4%)

- May NAHB Housing Market Index: 45 (KR Forecast consensus: 51; Prior: 51)

Thursday's economic data Releases:

- 8:30 ET:

  - Weekly Initial Claims: KR Forecast consensus 218,000; prior 231,000

  - Continuing Claims: Prior 1.785 million

  - April Housing Starts: KR Forecast consensus 1.440 million; prior 1.321 million

  - Building Permits: KR Forecast consensus 1.488 million; prior 1.458 million

  - April Import/Export Prices

  - May Philadelphia Fed survey: KR Forecast consensus 5.0; prior 15.5

- 9:15 ET:

  - April Industrial Production: KR Forecast consensus 0.2%; prior 0.4%

  - Capacity Utilization: KR Forecast consensus 78.4%; prior 78.4%

- 10:30 ET:

  - Weekly natural gas inventories: Prior +79 bcf

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