D&D Note (6.10.2022) ~ Markets Tank on Hot Inflation the Highest Since 1981 ~
The Consumer Price Index CPI report showed inflation rose 8.6% in May, the highest reading since 1981.
Here are the May Year-over-year changes:
- Fuel Oil up 106.7%
- Airline Fares up 37.8%
- Used Cars & Trucks up 16.1%
- Food at Home up 11.9%
- Shelter up 5.5%
Markets tanked today on the hot inflation reading although the S&P 500 did not break the 3900 level to retest the lows of the year.
The 2 Year Note hits highest yield since 2008 moving 25 basis points just today.
All 11 sectors finished today in the red today. The S&P 500 has fallen 9 out of last 10 weeks. 9 of 11 sectors are now down more than 10% from highs. And the index is now down -19.1% from all-time high.
3810 is the key level we need to hold as that is this years intraday low on the S&P 500. If we break that the bottom could really fall out with 3350 solid support.
29 of the 30 DOW stocks finished lower with only Walmart gaining on the day. The DOW has fallen in 10 of the last 11 weeks.
Next week we have US PPI on Monday, FOMC rate meeting Wednesday along with US retail sales, BOE rate meeting Thursday along with US housing starts & jobless claims, and the BOJ rate meeting Friday along with Eurozone CPI.
Does the FED now have to be even more hawkish following next weeks meeting where a 50 basis point hike was expected. Does the FED surprise markets and go 75 basis points next week even though they already signaled only 50bp for June?
Barclays and Jefferies are now forecasting a 75 basis point hike next week.
In July are we going to get a 75 basis point hike? If they did go 75bp in July that would allow them to then either pivot and pause in September or only hike 25 basis points.
The US is no longer requiring Covid testing for international travel. The change takes effect Sunday at 12:01 am EST.
Diseases suppressed by Covid are now making a comeback with Influenza, Respiratory syncytial virus, adenvirus, tuberculosis, and monkeypox have been spiking in recent months.
Stock Specific News:
Docusign falls 24% after missing on earnings and downgraded by three Wall Street analysts.
Tesla is seeking board approval for a 3 to 1 stock split.
Netflix downgraded to sell by Goldman Sachs siting rising competition and looming recession.
Robolox downgraded to sell by Goldman Sachs on concerns about post-pandemic environment.
eBay downgraded to sell by Goldman Sachs which sees revenue growth risks and overexposure to international markets.
Spirit Airlines upgraded to overweight by JP Morgan on merger probability being high.
AMD analyst day was yesterday and they see 20% annual revenue growth and the analysts agree maintaining a buy rating with price target raised to $135.
D&D added more to the positions we have been legging into recently buying today shares of Devin Energy, Palo Alto Networks, Lockheed Martin, and Advanced Micro Devices.
Market Knowledge Tip:
Know what you own.
Don’t buy shares of companies when you don’t even know what the companies does, or how they plan to make profits, or what the fundamentals & technicals are.
Just because somebody recommends a high flying tech stock, do your own homework and find out what the business case is for the company before buying.
The same goes for crypto coins, if you can’t explain what the utility of a coin is then you definitely should not buy it.
Closing Markets (as of 1:15pm PST)
DOW down -2.73%
S&P 500 down -2.91% (3,900.86)
NASDAQ down -3.52%
VIX up 6.4% to 27.76
2 Year Note up 25.40bp to 3.07%
10 Year Note up 11.09bp to 3.15%
Oil down -0.724% to $120.63 a barrel.
Gold up 1.231% to $1875.60 an ounce.
Bitcoin down -3.40% to $29,114.14
Ethereum down -6.05% to $1,677.43
~ Dave James / Principal Trader and Market Strategist