Monday Takeaways: The Markets Are Fed Up

Shah Gilani|June 17, 2024

The market’s rally last week left many investors scratching their heads.

Better-than-expected CPI numbers? Shrugged off.

The Fed hinting at only one cut? Brushed aside.

The Nasdaq and S&P soared, yet you can feel the rumblings of unease.

Are the fears justified? I break it down in today’s video.

Plus… we’ve got a busy week of data releases. And while those numbers will tell us more about the consumer and the economy at large…

There’s ONE indicator that cuts through the noise and shows us where the market is headed. Pay attention… and you’ll invest with confidence.

Click on the thumbnail below to see what’s moving the markets – and your portfolio – this week.

Transcript

Hey, everybody. Shah Gilani here with your Monday Takeaways.

First up, the takeaway – takeaways plural – from last week.

The CPI number was a little better than expected. The markets didn’t care. They figured it was going to be good. Rally.

From the Fed meeting… it looks like there’s only going to be one cut. Markets didn’t care. Rally.

Bonds rallied, and that led the stock market rally.

The Nasdaq Composite was up 3% last week. The S&P was up 1.5%.

What’s amazing about that is now, increasingly, if you have your ear to the tracks, you’re hearing rumblings – they’re far away but getting closer – that things aren’t that good. Maybe we’re getting bubblicious. Maybe the market’s due for a turn. Maybe things aren’t as good as they seem and something bad’s going to happen.

Something like 2000.

And I don’t get that.

I guess for some analysts and commentators, they have to find something to say that’s negative. Well, there’s always stuff out there… but it’s not here.

So the takeaway from last week was stuff was good, and the market reacted well.

Now, it sounds like people are saying bad news is going be bad in the future. Well, first of all, what bad news? We haven’t had much bad news.

The bond market is rallying. That’s all you need to know. The stock market still has higher to go. That’s all you need to know… until something actually changes. That’s what’s going on.

And further proof of what’s going on being solid is that the bond market is rallying in the face of the Fed saying in their summary of economic projections (SEP) that instead of possibly three cuts as indicated in their March SEP… in the latest SEP, it’s one cut, maybe.

But markets didn’t see it that way. Fed fund futures are actually now pricing in two, perhaps more, cuts with a 70% chance.

So they’re not listening to what the Fed is saying. The bond market and bond investors are doing what they think is going to happen.

They are rallying bonds because they think that rates are coming down, and not because the Fed says they’re not going to cut or maybe cut once. Bond investors think the Fed is going to cut maybe because they think the Fed might have to.

If they’re thinking the economy is going to slow down enough that the Fed’s going to have to cut, then that’s all you need to know.

The takeaway from that is where the chitter chatter is coming from, that the stock market may be ahead of itself. Because if the bond market is rallying, it’s really rallying because bond investors think the economy is going to slow down and the Fed’s going to have to cut, not because the Fed says they may only cut once.

So bond investors are causing stock investors and analysts to question whether or not we’ve gone a little too far, too fast as far as the benchmarks.

Right? That could be the scenario. However, a whole bunch of top analysts and banks raised their estimates last week.

One of them I saw was for the S&P to end the year at 6,100.

That’s not a slowdown.

If it’s an economic slowdown, then are they pricing in higher stocks because we’re going to get cuts because the economy’s got a “better than Goldilocks” landing?

The takeaway from that is we’re rallying.

Whatever the narrative is you want to attach to why we’re rallying, step back from trying to find narratives and understand that the narrative best watched is the market itself.

Bonds are rallying. That’s supportive of stocks rallying. That’s it. You can go deeper, and we can always go deeper, and sometimes we will when it’s necessary. But right now, because there’s stuff going on, there’s chitter chatter everywhere.

The takeaway is… follow the trend. The trend is your friend.

This week, we have a whole bunch of stuff going on. We have retail sales tomorrow, Tuesday. We have retail sales for May.

Now, the estimate is for an increase of 0.3% to about $707 billion in retail sales. So we have to keep an eye on that. If the consumer starts to roll over a little bit or retail sales are down or negative, then maybe the consumer is tired. Maybe they’re getting to the point where they’re going to pull back. So, retail sales are going to be a big deal Tuesday.

Wednesday, the markets are closed for Juneteenth.

Thursday, we have the residential construction for May from the Census Bureau. We’re looking for about seasonally adjusted 1.4 million starts. So keep an eye on that because housing stocks have really done well. What is this going to do to housing stocks? That’s been on a bit of a tear. So we’re going to keep an eye on that because maybe there will be some plays in housing stocks if things come down. A lot to watch there.

On Friday, we have manufacturing PMI.

The estimate is for 51. Anything above 50 is growth. So the manufacturing PMI is expected to be 51 for June. May was 51.3. It’ll be slightly down from May. But we’ll see.

Services PMI also comes out on Friday. The estimate is for 54.6 for June. May was 54.8.

So the estimates are that both services PMI and manufacturing PMI are going to cool a little bit from where they were in May. That remains to be seen, but we’re going to be watching that on Friday.

That’s going to be important.

That’s where we’re at right now. We have some data coming out this week. We have some stuff to do.

More importantly, how is the market going to react to what happened last week, which was very positive? Is it going to continue heading in a positive direction?

Keep an eye on the bond market, people. It’s still leading us where we’re going.

Thanks for watching and I’ll catch you guys next week. Cheers.