Back to the grind after a long holiday weekend. The stock market and interest rates behaved last week so perhaps we are seeing some consolidation before the next move in either direction. The small-cap growth stocks have been in the pole position and leading the market higher these past few weeks, see below.
The Fed released its minutes this week and interest rates pulled under 3% so a runaway 10 year yield is not happening in the short-term. No reason for the stock market to panic over interest rates.
The technology sector has been steadily moving higher since early May and may now be on the verge of a breakout.
Which leads us to the S&P 500 which may have stalled out and looks to be a coin-toss as to the next move.
Overall, a bit of a mixed picture with signs off strength in technology, semiconductors and biotechnology. There is nothing of significance on the calendar right now so it is likely that the stock market will complete the triangle pattern you see in most of these charts – either way it will be a big move. I was encouraged by the semiconductor index showing strength this week which is the heart of the technology sector as computer chips are in everything these days. A shortened holiday week is coming up so it may be sleepy but things could be interesting in the International arena as news out of Europe (Italy) and Asia (North Korea) will govern the headlines (read more below).
Chart of the Week!
Economic & Central Banking Snippets
- The value of Japan’s exports rose at the quickest clip in three months in April thanks partly to a boost in shipments to the US but still came up short against economist expectations. Exports in April grew 7.8% (YOY), quickening from a rise of 2.1% in March. (FT)
- The Fed released the minutes of their last official policy meeting on Wednesday which was received well by the stock market. WSJ Fed watcher Nick Timiraos summed things up well on the supposed message: First, the minutes detail a discussion in which officials saw “a temporary period of inflation modestly above 2%” as “helpful in anchoring longer-run inflation expectations.” That reinforces prior signals that inflation over 2% won’t bother them: they’ve emphasized their inflation target is symmetric, meaning they won’t dial up rate increases if inflation rises above their 2% goal. Second, the minutes reveal some concern about declaring mission accomplished on the inflation front, with one official saying it was “premature to conclude” inflation would remain at 2% given the Fed’s forecasting misses in recent years. It’s another reason officials would welcome a modest overshoot.
- A group of 154 German economists published an op-ed in the Frankfurter Allgeimne Zeitung (FAZ) citing opposition to the proposed Macron plan for a unified banking system in the EU and some type of harmonized fiscal policy. The economists set out to make the case against the French plan in three key points: 1)“The eurozone needs an orderly insolvency procedure for states and an orderly withdrawal procedure.”; 2) There is an urgent need for individual nations to continue down the path of reforms for their economies rather accepting the yoke of a “union of liabilities”; 3) “A common deposit insurance scheme would ‘socialize the costs’ of mistakes that banks and governments have made in the past.” (FT)
- Nicolás Maduro won a disputed election in Venezuela. The victory means Chavismo—the radical leftist movement named for the late Hugo Chávez—will begin a third decade of uninterrupted rule when Mr. Maduro is sworn in again next year. By the end of 2018, Venezuela’s economy will have contracted by 50% since 2013, hyperinflation is expected to top 13,000% and the U.S. has imposed sanctions on much of the top leadership of the government. Mr. Maduro’s victory will likely plunge Venezuela into deeper crisis. It also means Venezuela’s oil industry will continue to collapse, keeping vital oil off global markets at a time of rising international oil prices. (WSJ)
- Turkey, almost a trillion dollar economy, is entering a full-blown currency crisis. The lira suffered its biggest loss in almost a decade Wednesday as confidence in the central bank’s willingness to halt its slide all but evaporated. Policy makers “must hike now,” said Cristian Maggio, the head of emerging-market strategy at TD Securities in London. “There’s no limit to how far this could go because this is becoming a currency crisis.” Eventually, Turks will start selling too, and then there will be “total loss of confidence,” he said. The lira has fallen every day but three during May, putting it on course for its worst month in a decade, as the combination of the strengthening dollar, a widening current-account deficit and a central bank reluctant to act rattles investors. The latest turmoil was triggered when President Erdogan, who has long opposed interest-rate increases, said this month he intends to take more responsibility for monetary policy if he wins the June 24 election. (FT)
- State and provincial regulators in the U.S. and Canada said they have conducted a wide-ranging crackdown regarding cryptocurrencies, specifically on initial coin offerings (ICOs) which resulted in nearly 70 open investigations and 35 pending or completed enforcement actions. As part of a coordinated action plan dubbed “Operation Cryptosweep,” the regulators said they went after dozens of ICOs, whose popularity in recent months has made them vehicles for swindlers to solicit funds from unwitting investors.
- Tesla has slashed up to $14,000 off its Model X in China after Beijing announced major tariff cuts for imported automobiles, a potential sales boost for the U.S. firm as the world’s largest auto market pivots towards electric cars.
- General Electric Company (GE) stock traded lower by more than 7% on Wednesday after CEO John Flannery said he is not expecting any profit growth from GE’s power unit in 2018.
- Russian aluminium producer Rusal said on Thursday its chief executive and seven directors had resigned and the company warned that US sanctions imposed last month meant it might have problems repaying its debts. In a separate statement, it said that unless US sanctions put in place in April were lifted, its production of metals and sales would be “severely impacted”.
That is all for now until next week’s Market Update. If someone forwarded you a copy of this report, you can sign-up directly at www.kiscocap.com.
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Paul J. McCarthy, III
President – Kisco Capital