Thoughts For Thursday: Tech Still Leading

The stock market continued to pull higher Wednesday with the biggest points gained in the Nasdaq Composite. Tech is still the big leader. depositphotos On Wednesday the S&P 500 closed at 5,421, up 46 points, the Dow closed at 38,712, down 35 points and the Nasdaq Composite closed at 17,608, up 265 points. Chart: The New York Times Most actives were led by Nvidia (NVDA) up 3.5%, followed by Apple (AAPL), up 2.9% and Tesla (TSLA), up 3.9%. Chart: The New York Times In morning futures trading S&P 500 market futures are up 4 points, Dow market futures are down 130 points and Nasdaq 100 market futures are up 115 points.TalkMarkets contributor Bert Dohmen tries to pour some cold water on good news in This Is The Best Opportunity For Investors In Decades. Unsplash “AI is the greatest development since the Industrial Revolution. Of course, many companies won’t succeed. The letters “AI” of course do not guarantee success.The greatest achievements in history, such as the railroad, electricity, and the telephone, had big stock flurries in their early booms, but then those stocks collapsed. The average investor lost a fortune. The original founders of those firms had made their fortunes. Read the story of James J. Hill of St. Paul who created what eventually was the Great Northern railroad.The AI equivalent may be Jensen Huang of NVDA. He is a genius, perhaps somewhat similar to Elon Musk. NVDA has had a spectacular run, up over 1000% since late 2022. See the long-term weekly chart below:
NVDA had a stock split after last Friday’s market close (June 7, 2024) at a ratio of 10 new shares for every 1 old share. The last time it split (July 20, 2021), it gained nicely over the next 4 months until the November 2021 market peak. Then, the 2022 bear market in stocks demolished it.Our work on the general market suggests this might happen again.The leaders of the rally continue to be the strongest performers. The NYFANG Index, comprised of 10 mega-cap tech stocks, continues to lead the charge, outperforming all other indices this year.On the 2-day chart of the NYFANG Index below we see it tested support from the March and April highs on May 31 (green horizontal line), then bounced off that level to break out and set a new all-time high yesterday, June 11.The break out to a new record high was in large part due to Apple’s big gain after their WWDC, where they announced their long-awaited strategy for AI.The NYFANG Index has traded nicely within the regression channel since the late October 2023 low. Also, notice the MACD at the bottom is still rising on its “buy” signal from the early May bottom (blue arrow). 
This is why the chart of the “FANG” stocks and “Magnificent 7” may be important for active traders who try to catch shorter term moves at this part of the market cycle.Currently, active investors have a great opportunity. But investors must be decisive. There will be sharp corrections in AI and related sectors. We call that “shaking the tree,” when Wall Street wants to buy the shares cheaper. There will also be sectors that do not participate in the market rally as money flows out of those sectors and into AI.Investors must have a plan and know their own emotions. Decide now what you would do if a 20% or more decline starts in this sector or the general stock market… At the height of a frenzy, investors must be able to ignore their ebullient emotions and sell…Of course, in AI, Nvidia should lead the charge in the next rally we expect this summer. The AI ETFs will do very well…Semiconductor stocks and data center stocks will also participate.”Contributor  Mish Schneider  asks Post-FOMC – What’s Next?”Summary Of Fed Decision (Kobeissi Letter)

  The bottom line-

 ETF SummaryS&P 500 (SPY) 545 is a good target-but no signs of a reversal yetRussell 2000 (IWM) Cleared the 50-DMA but needs to hold 201Dow (DIA) 40k resistance and also an interesting turn to redNasdaq (QQQ) All-time highs which still hard to argue withRegional banks (KRE) Watching the range 45-50 CAREFULLYSemiconductors (SMH) Unless this breaks 250-strong and on ATHsTransportation (IYT) 63.80 area now important support with 66-67 the area to clear for healthBiotechnology (IBB) 135 support 140 resistance-big eyes here this weekRetail (XRT) 75-80 trading range to breakiShares iBoxx Hi Yd Cor Bond ETF (HYG) Looks better yet still in a range until it clears 78 Contributors from the Staff at Just Markets note The US Fed Has Planned Only One Rate Cut This Year And Four Cuts In 2025.”As expected, the FOMC kept the target range for the federal funds rate unchanged at 5.25%–5.50% and said it would not cut rates until there is more confidence that inflation is moving steadily toward 2%. The FOMC maintained its 2024 US GDP estimate at 2.4%, unchanged from March, but raised its 2024 core PCE prognosis to 2.8% from 2.6% in March. Meanwhile, the dot plot shows that policymakers see only one rate cut this year and four cuts in 2025. Fed Chairman Powell said that inflation has come down significantly but is still too high, and the Fed maintains its restrictive stance to reduce demand relative to supply. He added that the CPI report is “progress” but not enough to justify policy easing. Markets rate the odds of a 25 bps rate cut at 8% at the July 30–31 FOMC meeting and 60% at the next meeting on September 17–18… depositphotosEquity markets in Europe were mostly up on Wednesday. Germany’s DAX (DE40) rose by 1.42%, France’s CAC 40 (FR40) closed up 0.97%, Spain’s IBEX 35 (ES35) added 0.63%, and the UK’s FTSE 100 (UK100) closed positive 0.83%.ECB executive board representative Schnabel said yesterday that the Eurozone economy is gradually recovering, but the “last mile” of disinflation is proving to be bumpy. His counterpart, ECB governing council spokesman Patsalides, said the ECB’s future actions on interest rates would depend on data, and there is no specific direction the Central Bank is sticking to…Asian markets were predominantly down yesterday. Japan’s Nikkei 225 (JP225) was down 0.66%, China’s FTSE China A50 (CHA50) lost 0.07%, Hong Kong’s Hang Seng (HK50) was down 1.31% and Australia’s ASX 200 (AU200) was negative 0.51%.Hong Kong’s stock market rose by 0.50% in morning trading on Thursday after falling more than 1% in the previous session, mainly due to gains in consumer and technology stocks. Electric carmakers rose amid signs that the EU’s tentative decision to raise tariffs on Chinese cars matched market expectations.In Australia, the unemployment rate fell to 4% in May from a three-month high of 4.1% in April, matching expectations. The Reserve Bank of Australia (RBA) will keep the money rate at 4.35% at next week’s meeting but will likely reiterate that it will not rule out a further rate hike if inflation picks up…”TM Contributor James Harte  has the following Nasdaq 100 Commentary – Thursday, June 13.”Stocks remain firmly supported today, suggesting that traders are focusing on the drop in inflation for now and the fact that the Fed is still on course to cut rates this year. Looking ahead today, focus will be on PPI with any fresh weakness in this reading likely to push USD back down, giving stocks a fresh boost. NasdaqThe rally in the Nasdaq yesterday saw the index gapping higher, with price testing the upper limits of the bull channel once again. Momentum studies remain bullish here, keeping the focus on further upside while we hold above the 18,12.17 level and the bull channel lows.”    Contributor Danielle DiMartino Booth says Fed Policy Deaf To Entrenched Disinflationary Readings”Lower-than-expected inflation initially priced the Fed’s first cut sooner. The fall in durable and discretionary inflation advertises the efficacy of the Fed’s tighter policy. Persistently high nondiscretionary inflation also has had a hand in cutting purchasing power and generating a drag on discretionary demand. Travel pricing has capitulated in 2024. Moreover, rental disinflation is well in train. Despite falling on deaf Fed officials’ ears, the inflation-unemployment convergence narrative continues to gain traction. Odds of a big Dot Plot backtrack in September are rising.  Takeaways

 TM contributor Dr. Duru writes Fed’s Powell Avoids The Obvious: Inflation And Interest Rate Forecasts Make Little Sense”The Federal Reserve rolled out its latest statement on monetary policy which included an updated Summary of Economic Projections (SEP). Both Chair Jerome Powell’s words and the forecasts in the SEP seemed to be a play on the theme of a dovish hawkishness. The fundamental message is hawkish given the explicit reluctance to officially launch a rate-cutting cycle. The underlying message is dovish in allowing financial markets to cling to the hope of rate cuts coming some time just around the corner…Most telling in today’s performance was Powell’s dance around the questions trying to reconcile the economic forecasts with the rate forecasts. They seem inconsistent at best and make little sense at worst: one rate cut and no further progress on inflation (core PCE (Personal Consumption Expenditures)). The quotes below come from Powell’s introductory remarks.

Put it all together, and it is not clear why the Fed wants to cut rates at all this year. I made this point last month in “Fed’s Powell Avoids Rate Cut Talk While April CPI Keeps Hope Alive” and in March in “Financial Conditions Make A Monetary Roundtrip and Undercut the Need for Rate Cuts“. Now, with no forecasted progress in core PCE inflation for this year, the Fed seems to risk sticky inflation staying sticky for longer if it cuts rates before seeing the “sustained progress” Powell talks about ad nauseam. In this latest round, Powell repeated the policy principle yet again: “we don’t think it’ll be appropriate to reduce rates and begin to loosen policy until we have more confidence that inflation is moving back down to 2% on a on a sustainable basis and that’s the that’s the test we’ve applied”.When Powell was asked about the conundrum, I expected him to untangle the problem by indicating these forecasts are interdependent and assume that the underlying economic mechanisms that connect all these factors work out as expected…Powell began by explaining away the sticky core PCE with a technical discussion about lapping lower readings from last year. He essentially suggested that the sticky core PCE is an artifact of tough comparables and thus not as meaningful as it seems at first glance. More baffling was Powell’s attempt to reconcile a year-end forecast that is higher than analyst forecasts for core PCE in May while at the same time forecasting a rate cut:

“it’s a forecast a fairly conservative forecast month by month that would lead to slightly higher…12 months rates by the end of the year if we get…better ratings than that then you will see that come down or remain the same. If you’re at 2.6 2.7 [for May] you know that’s that’s a really good place to be.”

In other words, this last lonely rate cut rushing toward the departure gate looks like the Fed’s fleeting attempt to throw the market a bone and deliver permission to continue to rally in anticipation of a rate cut cycle.”Seems to be working…That’s a wrap for today.Have a good one.Peace.depositphotosMore By This Author:Tuesday Talk: Looking Good Across The Board, What About China?
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