(ECONOMIC DATA POINTS ARE POSITIVE FOR THE MARKET)
May 20, 2024
Hello everyone,
Week ahead calendar
Monday, May 20
Australia Consumer Confidence Chg.
Previous: -2.4%
Time: 8:30 pm ET
Earnings: Palo Alto Networks
Tuesday, May 21
Canada Inflation Rate
Previous: 2.9%
Time: 8:30 am
Earnings: Auto Zone, Lowe’s Companies
Wednesday, May 22
10 a.m. Existing Home Sales (April)
2 p.m. FOMC Minutes
UK Inflation Rate
Previous: 3.2%
Time: 2:00 am ET
Earnings: Nvidia, TJX Cos, Analog Devices, Target, Raymond James
Thursday, May 23
8 a.m. Building Permits
8:30 a.m. Chicago Fed National Activity Index
8:30 a.m. Continuing Jobless Claims
8:30 a.m. Initial Claims
9:45 a.m. PMI Composite preliminary
9:45 a.m. S&P PMI Manufacturing preliminary
10 a.m. New Home Sales
11 a.m. Kansas City Fed Manufacturing Index
Japan Inflation Rate
Previous: 2.7%
Time: 7:30 pm
Earnings: Intuit, Ralph Lauren
Friday, May 24
8:30 a.m. Durable Orders
UK Retail Sales
Previous: 0%
Time: 2:00 am
Last week the Dow pushed through 40,000 for the first time ever. The S&P500 also broke through 5,300 for the first time. And there are higher targets ahead.
Are you going to argue with a market making new highs? But many of you will be scratching your heads wondering how healthy this market is and how we got here in the first place.
Let’s start with aggressive market positioning at the end of the first quarter and a test of Wall Street’s faith in an ideal soft economic landing, followed closely by a friendlier set of inflation numbers, and a stellar show of earnings by big companies, and last, but not least, a reversal of the April Treasury yield surge (which I have been predicting for several months through charts on my monthly zoom meetings).
The advice here, then, is not to overthink things and look for elements that don’t fit the narrative thus far. Many strategists conclude that record closes are more to be respected than feared when they arrive. Records tend to persist, though one exception is the brief visit to unprecedented heights in 2007.
So, what could go wrong?
Maybe, ugly inflation reports later this month or a not-so-rosy set of numbers from Nvidia’s earnings? This could stir up the placid landscape and place us all into rethink mode. But the characteristics we have at the present time are not to be argued with, so let’s go with what the market is giving us – a market with “just the right mix”.
While valuations are elevated at 20.7 times forward earnings, the S&P500 P/E at 5,300 is slightly lower than it was on March 28 with the index at 5,250 because profit forecasts are up more.
The market has shown itself to be a bit more defensive lately. Consumer cyclicals are losing steam, and transportation stocks are lagging. The Citi U.S. Economic Surprise index has fallen into negative territory more deeply than any time since late 2022, meaning that the macro data is slipping relative to increased forecasts. Retail sales for April were flat, too.
So, is this just about the right amount of negative data? It could actually be seen as a welcome deceleration in the economy that could help the Fed’s disinflationary cause rather than the start of more pronounced weakness.
Lower-income spending softness is being offset by an industrial and tech-hardware capital-spending boom.
Looking more broadly gives us some insights into what is helping sustain bullish sentiment: there were two bear markets in the past four years, the S&P500 is less than 11% higher than it was 28 months ago, and the current bull run is so far modest in both length and total appreciation compared to historical averages. In other words, this market has further to run.
In other news:
Nvidia will be in the spotlight this week and I’m sure it will attract a lot of attention. Can Nvidia’s earnings results propel the market higher, for those that are sitting on the AI gravy train?
This week also brings inflation data releases for Canada, Japan, and the UK. Bank of England officials and GBP/USD traders will be watching the data release closely on Wednesday, as the numbers could either solidify the likelihood of an impending rate cut, or further delay cuts.
Market Update
S&P 500 - has rallied as anticipated. The market is undergoing a 5th wave advance onto new highs for the year. First target lies around mid 5,400 and then next target = around 5,700.
Gold – advance in progress.Target = around $2,500.Higher targets are around $2,650 and $3,270.
Silver – advance in progress.Target = around $34.80.
Bitcoin – Uptrend has resumed. The rally will first meet resistance around $73,790 (March 14 peak).After breaking through this resistance, the next target = around the mid $80,000’s.Support is found around $63,000 max. (There is a chance that Bitcoin could retest the low $50k level at some point before continuing to rally – you are forewarned).
Cheers,
Jacquie
