Photo by Ibrahim Boran on Unsplash
 

Equity futures are treading water following the S&P 500 putting in a record close yesterday fueled by improving rate cut hopes and falling Treasury yields. That was brought about by the weaker than expected print for ADP’s May Employment Change report and the tick lower in ISM’s May Service PMI’s Prices component. 

That brought the index’s YTD return to 12.25%, but comparing it against those for the Nasdaq Composite (+14.5%YTD) and the equal-weighted S&P 500 (+4.5%) tells us where the market action is concentrated. To say investors are leaning into Nvidia’s (NVDA) upcoming 10:1 stock split would be an understatement given the stock’s more than 5% move yesterday. We’d chime in that a few signals for our AI and Digital Infrastructure models below might have had a role in that move. 

However, and yes there had to be a “however”, the 152,000 jobs ADP found that were created in May were well above the 126,000 July 2023-January 2024 average. Despite the “dip” in the ISM Price data, it still came in at 58.1, putting it well into expansion territory. Helping explain ADP’s May jobs figure, S&P Global’s May Service PMI report pointed to employers not filling vacated roles because of existing wage pressures. The report also showed output prices continued to chug higher, something revealed in both May Manufacturing PMI reports earlier this week. 

This suggests we’re likely to see only little movement in the May core CPI figure when it’s published next week. Before we get there, we’ll see if the European Central Bank delivers a rate cut today as is widely expected. Tomorrow brings the US May Employment Report, giving another take on job creation and wages, as well as the latest Unemployment Rate figure. Two of its three last prints came in at 3.9% and should the May figure cross into 4% territory it could stoke the market’s renewed hope for a Fed rate cut as soon as September. 

Should the market dip back into hopium mode for what the Fed might say next week, the context above that shows the economy is growing at a healthy clip and inflation is not backing down. This leads us to expect that the Fed is going to reiterate its “need to see more good data.” It wouldn’t be the first time the market has misread the Fed, and if that happens again, we could see the market give back some of its recent gains which could be an advantage to anyone allocated to the Market Hedge model. 

At a time when many retailers are bemoaning the state of the consumer, Consumer Inflation Fighter model resident Costco (COST) reported eye-popping May sales that rose 8.1% year over year. Excluding the impact of gasoline prices and foreign exchange, total company comparable sales gained 6.5%. US comparable sales for May rose 5.8%, and 5.7% excluding gasoline prices and foreign exchange.

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