Inflation Continues to Moderate, Debt Ceiling Looms (May 12 Market Recap).
Indices
- Dow 33,300, -374 or –1.11%.
- Nasdaq 12,284, +49 or +0.40%.
- MSCI EAFE 2126.26, -18.37 or -0.85%.
- S&P 4,124, -12 or -0.29%.
- USD10Y 3.463%, +1.7bp or +0.49%.
- WTI Crude $70.09 bbl, -$1.23 or –1.72%.
Inflation Continues to Moderate
The Consumer Price Index rose less than +5% for the first time since April 2021 and now stands at +4.9%. The largest driver of this month’s CPI was shelter, up +0.4% (but given a 32% weighting in the index) and used car and truck prices which rose +4.4%. Even more encouraging is that wholesale prices as measured by the Producer Price Index (PPI) are falling even faster. April’s year-over-year PPI (YoY) fell to +2.3% and has declined 2.4% in just the last 3 months. It begs the question; if the rate of rising input prices is decreasing why are retail prices rolling over at a much slower pace?
Debt Ceiling Looms
With Treasury Secretary Janet Yellen estimating that the Federal government will be out of money by June 1, the clock is ticking on a bill to raise the debt ceiling. There at least two potential work arounds to Congress’ intransigence; President Biden could cite Section 4 of the 14th amendment of the U.S. Constitution which states…
The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.
The second potential solution, which admittedly sounds farcical, is the minting of a trillion-dollar coin. This theory dates to the last debt ceiling crisis in 2011. The theory goes like this: while the U.S. Mint faces restrictions in the amount of paper currency it can print and coinage it can issue, no such restrictions exist for platinum. Thus, the U.S. Mint, under the direction of the U.S. Treasury could mint one such coin, and chopper it to the U.S. Treasury for deposit. Interestingly, the platinum coinage provision was passed by the 1996 Republican controlled Congress.
Regardless of the solution or lack thereof, significant volatility should be expected over the next several weeks.
Next Week
Significant insight as to the health of the U.S. consumer will be provided next week with the publication of April Retail Sales as well as earnings reports from Home Depot, Target, TJ Maxx, Walmart and Ross Stores.
Economic Calendar
- Monday – May Empire State Manufacturing Survey.
- Tuesday – April Retail Sales. Earnings: Home Depot (HD).
- Wednesday – N/A. Earnings: Cisco Systems (CSCO), Target (TGT), TJ Max (TJX).
- Thursday – Initial Jobless Claims, May Philadelphia Fed Factory Survey. Earnings: Walmart (WMT), Ross Stores (ROSS).
- Friday – N/A.
If you know of any friends or family members who could benefit from our services and these types of communiques during these unique times, we are accepting new clients and offer a complimentary one-hour review.
May 12 Daily Trading Recap…
Monday – Dow -55 to 33,618, Nasdaq +21 to 12,256, S&P +2 to 4,138, USD10Y +7.5bp to 3.521%
- Seven of eleven S&P sectors traded down, led lower by Real Estate, Industrials, and Utilities.
- Earnings: PayPal (PYPL) beat their numbers, guided the current quarter earnings lower but guided full-year earnings higher; PYPL traded down –5.79% post close. Electric car manufacturer Lucid (LCID) fell –8.69% on increased losses. Palantir software (PLTR) jumped +21.45% on better numbers and increased guidance.
Tuesday – Dow –56 to 33,561, Nasdaq –77 to 12,179, S&P –18 to 4,119, USD10Y +0.0bp to 3.521%
- Eight of eleven S&P sectors traded down, led lower by Materials, Technology, and Health Care.
- Earnings: Airbnb (ABNB) beat their expectations but guided lower. Toast (TOST) beat revenues and lost less than expected. Wynn Resorts (WYNN) easily beat their numbers.
Wednesday – Dow –30 to 33,531, Nasdaq +126 to 12,306, S&P +18 to 4,137, USD10Y -8.2bp to 3.439%.
- Seven of eleven S&P sectors traded up, led by Communication Services, Technology and Real Estate.
- The April headline month over month Consumer Price Index (CPI) was in line with expectations at +0.4%. Year-over-year CPI declined to +4.9% vs +5.0% expected.
- Earnings: Disney (DIS) reported in line earnings, beat revenues and missed their Disney+ subscriber goals; the stock traded down -4.79% post-close. Robinhood (HOOD) beat on revenues and traded up in the extended session.
Thursday – Dow –221 to 33,309, Nasdaq +22 to 12,328, S&P –7 to 4,130, USD10Y –4.2bp to 3.397%.
- Eight of the eleven S&P sectors traded up down, led lower by Energy, Utilities, and Real Estate.
- Jobless claims rose again to 264,000 vs the 245,000 forecast and last week’s unrevised print of 242,000.
- April Producer Price Index (wholesale prices) were lower than expected again. Month-over-month prices rose +0.2% vs +0.3% expected and vs last month’s -0.4% decline. In turn, that led the year-over-year number to drop again to +2.3% vs last month’s +2.7% print.
Friday – Dow -9 to 33,300, Nasdaq -43 to 12,284, S&P -6 to 4,124, USD10Y +6.5bp to 3.463%.
- Seven of eleven S&P sectors traded up today, led by Utilities, Consumer Staples, and Communication Services.
- May Preliminary Consumer Sentiment was lower than expected at 57.7 vs 63 expected.
If you know of any friends or family members who could benefit from our services and these types of communiques during these unique times, we are accepting new clients and offer a complimentary one-hour review.
Disclaimer: This is not a recommendation to buy or sell any of the securities listed above. I personally, or a family member whose account I control, have positions in the following securities/assets…Bitcoin, Cardano, Chainlink, Ethereum, ETHE, GBTC, and TSLA.