Quad 7 Capital honors the men and women who gave their lives in service of this nation. Memorial Day, was originally known as Decoration Day. Did you know that? While it has morphed into a party weekend for many, with cookouts, days at the lake, travel baseball tournaments, etc, it is really supposed to be a day dedicated to honoring and mourning U.S. military personnel who died while serving their country. The origins of Memorial Day trace back to the years following the Civil War, a period of immense loss for the nation, where nearly a million Americans were killed. In 1868, a former Civil War general named John A. Logan established Decoration Day as a time to remember the soldiers who had died in the conflict. It was a day for decorating their graves with flowers and wreaths. Over time, Decoration Day’s significance grew to encompass all American wars. It became a national holiday in 1971, a day not just for decorating graves but for reflection and remembrance. In my mind, Memorial Day serves as a powerful reminder of the sacrifices made by those who have died defending the country. It’s a day of both mourning and gratitude, a time to honor the fallen and celebrate the freedoms they helped secure.
As such, with Memorial Day on Monday, please remember the market is CLOSED and so are our offices. Now lets turn back to the action.
First, I wanted to let you know that we have 1 spot left in our Memorial Day sale, down from 15 at the start. If you want it, you can take $250 off an annual subscription to Seeking Alpha’s premier investing service. Just ~$400 for a year with a money-back guarantee if you don’t like it (you will). This compares to the $139 a month some members pay, and severely discounted versus the $649 others pay annually. So Jump on it!
Why not, that is a killer deal. SIGN ME UP for the last spot. (CLICK HERE)
No thank you but Id like to hear your thoughts on the market
Ok, so here are my thoughts on the market, which is a weekly weekend piece every week at BAD BEAT Investing. NVIDIA reported a quarter that was pretty much in line with what I had expected, which of course, well above what consensus was. Analysts have really lagged on this one. But it helped markets start Thursday off nicely only to have a nasty 1% plus selloff. Most of that was made back Friday, and the NASDAQ is at highs. Can it last, or will Sell in May and Go Away rear its ugly head? Well, Investors will get another glimpse into inflation next week, as recent positive economic data has raised concerns on Wall Street that the Federal Reserve may not cut rates this summer. While I have opined for almost 16 months that the first cut would not be until H2 2024, this call is in danger somewhat, cause it is possible we dont get a cut at all in 2024! While a cut is still favored by November, the continual push back makes this possible. This news arrives as stocks are poised for a strong month-end close, following record highs. A combination of softer inflation data earlier in May and better-than-expected corporate earnings fueled a market rally, with the Dow Jones Industrial Average surpassing 40,000 for the first time.
However, the recent economic data has been mixed, with some strength alongside weaknesses in the consumer sector, creating uncertainty about future interest rates. This week, the Dow ended its five-week winning streak with a near 2% decline. In contrast, the S&P 500 was about flat but the NASDAQ set new records and was up 5 weeks in a row.
We have a big event coming next week. Next Friday’s release of the April personal consumption expenditures report could either reinforce the recent optimism or further cloud the Federal Reserve’s plans. Market expectations for a rate cut in 2024 have now shifted to just one cut, predicted for November according to the CME FedWatch Tool. So the PCE is huge, as it has the potential to add to the possibility of no cuts. But I argue further data is needed before the Fed makes any decision. If this month is good, and next month is good, then whatever the print we get in August would be far more important. There is also an election which a cut could be interpreted as political if done a month or so ahead of the election.
So we are watching for PCE on Friday. The April personal income and expenditures report, which includes the PCE inflation reading, could confirm the recent trend of cooling inflation. Economists anticipate the consumer spending measure to have risen by 0.3% in April, down sharply from the 0.8% increase the prior month. Core PCE is anticipated to have fallen to 0.26% and 2.8% on a monthly and yearly basis, respectively. That’s compared to the 0.32% increase on the month, and a 2.8% yearly gain.
But we as a team have been seeing signs of consumer weakness. While this has been mentioned in chat, and a bit in these weekend pieces, this caution is most notable in our public earnings coverage of retailers and restaurants. This at a time of high equity valuations, has the potential to hit equities over the summer if consumer data softens. And since we review hundreds of reports a month I can tell you that a recent spate of earnings reports show a diverging picture of consumer behavior. Starbucks was abysmal. McDonalds was tough. Home Depot was pressured. And Target, for example, said it’s lowering prices because of weakening demand from shoppers.
I believe we are on watch for a late summer correction. As such, I suggest having a couple insurance puts while volatility is low, going out 7-8 months. While they may erode for weeks or months, if we get a 5% plus correction again, they will print gains. I surmise the selling pressure (and this is just an educated guess based on history and subject to change based on data), but it is likely we see weakness seasonally from late July through October. It is not guaranteed, nothing ever is, but this is our current thoughts.
So, we still have more earnings coming in even though we are at the very end of overall earnings season. Next week will bring retail earnings results from Costco Wholesale, Ulta Beauty and Dollar General that could continue to give clarity on the consumer economy. Software names HP and Salesforce are also on deck.
Looking for more, claim the final spot of our Memorial Weekend Sale.
Week ahead calendar
All times ET.
Monday, May 27
No notable events
Tuesday, May 28
Economic data
9 a.m. FHFA Home Price Index (March)
9 a.m. S&P/Case-Shiller comp.20 HPI (March)
10 a.m. Consumer Confidence (May)
10:30 a.m. Dallas Fed Index (May)
Wednesday, May 29
Economic data
10 a.m. Richmond Fed Index (May)
2 p.m. Fed Beige Book
Key Earnings
HP, Salesforce, Agilent Technologies
Thursday, May 30
Economic Data
8:30 a.m. Continuing Jobless Claims (05/18)
8:30 a.m. GDP (Q1)
8:30 a.m. Initial Claims (05/25)
8:30 a.m. Wholesale Inventories (April)
10 a.m. Pending Home Sales (April)
Key Earnings
Costco Wholesale, Ulta Beauty, NetApp, Best Buy, Dollar General, Hormel Foods
Friday, May 31
Economic Data
8:30 a.m. Personal Consumption Expenditure (April)
8:30 a.m. Personal Income (April)
9:45 a.m. Chicago PMI (May)