Tuesday Talk: Onwards And Upwards

By David Marshall

Tuesday, May 28, 2024 5:20 AM EST

Onwards and upwards seem to be the watchwords for the market, though watchwords and stock markets are more than a bit of an oxymoron. Let's just hope that Friday's U.S. inflation data falls in line with market expectations.

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Monday the S&P 500 closed at 5,305, up 37 points, the Dow closed at 39,070, up 4 points and the Nasdaq Composite closed at 16,921, up 185 points.

Chart: The New York Times

Most actives were led by Tesla (TSLA), up 3.2%, followed by Advanced Micro Devices (ADM), up 3.7% and Nvidia (NVDA), up 2.6%.

Chart: The New York Times

In morning futures trading S&P 500 market futures are up 15 points, Dow market futures are up 14 points and Nasdaq 100 market futures are up 96 points.

TalkMarkets contributor Rajveer Rawlin puts out Market Signals For The U.S. Stock Market And Indian Stock Market - Tuesday, May 28.

"The S&P 500 is near all-time highs. We have bounced from recent lows without capitulation. This suggests the lows may not be in and the regime has changed from buying the dip to selling the rip. We may get a final flush down soon. Risky assets should continue breaking to the downside across the board, as earnings growth peaks.

The Fed has aggressively tightened into a recession. Deflationary busts often begin after major inflationary scares. The market has rebounded after correcting significantly, and more is left on the downside. The Dollar, commodities, and bond yields are continuing to flash major warning signs.

Asset Class	Weekly Level / Change	Implication for S & P 500	Implication for Nifty*
S & P 500	5305, 0.03%	Neutral	Neutral
Nifty	22957, 2.02%	Neutral **	Bullish
China Shanghai Index	3089, -2.07%	Bearish	Bearish
Gold	2335, -3.40%	Bearish	Bearish
WTIC Crude	77.80, -2.82%	Bearish	Bearish
Copper	4.76, -5.75%	Bearish	Bearish
CRB Index	294, 0.18%	Neutral	Neutral
Baltic Dry Index	1797, -2.55%	Bearish	Bearish
Euro	1.0847, -0.21%	Neutral	Neutral
Dollar/Yen	157.01, 0.87%	Bullish	Bullish
Dow Transports	15083, -2.70%	Bearish	Neutral
Corporate Bonds (ETF)	106.98, -0.20%	Neutral	Neutral
High Yield Bonds (ETF)	94.28, -0.22%	Neutral	Neutral
US 10-year Bond Yield	4.47%, 1.18%	Bearish	Bearish
NYSE Summation Index	667, -5%	Bearish	Neutral
US Vix	11.93, -0.50%	Bullish	Bullish
S & P 500 Skew	156	Bearish	Neutral
CNN Fear & Greed Index	Greed	Neutral	Neutral
Nifty MMI Index	Fear	Neutral	Bullish
20 DMA, S & P 500	5212, Above	Bullish	Neutral
50 DMA, S & P 500	5173, Above	Bullish	Neutral
200 DMA, S & P 500	4758, Above	Bullish	Neutral
20 DMA, Nifty	22443, Above	Neutral	Bullish
50 DMA, Nifty	22342, Above	Neutral	Bullish
200 DMA, Nifty	20948, Above	Neutral	Bullish
S & P 500 P/E	27.57	Bearish	Neutral
Nifty P/E	21.88	Neutral	Bearish
India Vix	21.71, 5.77%	Neutral	Bearish
Dollar/Rupee	83.06, -0.27%	Neutral	Neutral
Overall	S & P 500	Nifty
Bullish Indications	5	7
Bearish Indications	10	8
Outlook	Bearish	Bearish
Observation	The S&P was unchanged and the Nifty rose last week. Indicators are bearish for the week. Markets are at resistance. Watch those stops.
On the Horizon	US – GDP, Eurozone – German CPI, CPI

*Nifty	India’s Benchmark Stock Market Index
Raw Data	Data courtesy stockcharts.com, investing.com, multpl.com, nseindia.com, tickertape.in
**Neutral	Changes less than 0.5% are considered neutral

Global yield curves have inverted significantly reflecting a major upcoming recession. The recent steepening of the yield curve, within an inverted context, with rates falling, is a precursor to the next recession, and the riskiest assets will underperform going forward under such conditions. "

Contributor and chartist Declan Fallon writes that Breakouts For S&P And Nasdaq Remain Intact.

"Thursday's selling didn't deliver 'bull traps' for the S&P or Nasdaq. In fact, the Nasdaq breakout looks ready to accelerate higher. When we look at relative performance, the Nasdaq is surging away from both the S&P and Russell 2000 (IWM). Where there's a kink is the 'sell' trigger for On-Balance-Volume, although the indicator itself is flipping back and forth across the trigger line.

The Russell 2000 is back inside its trading range that weakens the significance of Thursday's losses. The index has found support on its 20-day MA, but the 20-day MA is criss-crossing its trigger line which weakens its ability to play as a buying zone."

See Fallon's article for additional charts and forecast comments.

In a short video contributor Gary Savage puts forth a bullish argument in 10,000 Was A Piece Of A Cake.

"I want to look at the stock market. Many people believe we're in the final bubble phase and about to crash, but I don't agree, not yet. I'll show you two examples illustrating the saying, "the bigger the base, the higher in space.""

Video Length: 00:11:55

TM contributor Stephen Innes finds that Investors Bet On Benign Inflation.

"In a song that remains the same type of market, cross-market volatility continues to take a vacation as investors cozy up to the idea of benign US inflation data later this week.

This sunny outlook has nudged the dollar down a tad, while the Japanese yen remains weak and shaky. Expect more of this cheerful monotony today, with everyone’s eyes glued to US consumer confidence and eurozone inflation expectations.

Despite short-dated US rates holding their ground, the dollar is on a slow slide. The culprit? A spell of low cross-market volatility and a merry chase for risk. Investors are again banking on a soft US landing, pinning their hopes on Friday's release of April's core PCE inflation data. With April’s CPI and PPI figures already in the mix, consensus is crossing its fingers for a mild 0.2% month-on-month increase. If this pans out, it could revive dreams of a September Federal Reserve rate cut, now given a 44% chance, and spell more bad news for the dollar. In short, there's a glimmer of hope in the Fed’s favorite inflation measure.

But beware, the macro narrative is as fickle as the weather. Just last week, whispers of a slowdown were all the rage after a string of disappointing top-tier releases. Then, on May 23, the mood flipped to “no landing” mode following upbeat services sector activity and a drop in jobless claims for the NFP survey week. As the 2s10s inversion approaches its second anniversary, we’re in uncharted territory. Your guess is as good as anyone’s...

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Deputy Governor (of the Bank of Japan) Uchida played the enigmatic card, declaring that “this time is different” as Japan inches towards ending deflation, though challenges remain in anchoring inflation expectations at 2%. He pointed out that deflation is not just an economic issue but a “social norm,” poised to change as labor shortages push employers to hike wages.

Over at the ECB, Chief Economist Philip Lane hinted that rate cuts could start in June but emphasized the need for a restrictive stance throughout the year. This begs the question: what exactly does "restrictive" mean? The long-term neutral rate is still a riddle wrapped in a mystery, pondered by central banks globally, including the Fed."

Contributor Mish Shedlock warns Zero Percent Down Mortgages Return, What Can Go Wrong?

"Perfectly Stupid Timing

Morningstar reports One of the Biggest U.S. Lenders is Offering 0%-Down-Payment Mortgages for First-Time Home Buyers.

Home buyers will be able to buy a home without putting any money down under a new program launched by United Wholesale Mortgage, one of the largest U.S. mortgage lenders.

The Pontiac, Mich.-based company’s new program will be available to first-time home buyers and people earning at or below 80% of an area’s median income, the company said in a press release.

UWM (UWMC) will give eligible buyers a second-lien loan of up to $15,000, in the form of down-payment assistance, for 3% of the home’s purchase price. The loan will not accrue interest or require a monthly payment.

“Homeownership is something we’re very passionate about,” Melinda Wilner, chief operating officer at UWM, told MarketWatch.

The company had previously allowed buyers to put down as little as 1% on their homes, but it wanted to go further to help home buyers, she said. The lender is anticipating a higher volume of borrowers with its new zero-down program, Wilner added.

Poor underwriting practices were a key driver of the subprime-mortgage crisis in the U.S., the International Monetary Fund wrote in 2008. But unlike the low- and no-down-payment loans that proliferated during that time – when lenders made loans to people who eventually were unable to pay them and lost their homes – UWM’s program is different, Wilner said.

“The aspect of this program that makes me nervous is the silent second mortgage,” Anneliese Lederer, senior policy counsel at the nonprofit Center for Responsible Lending, told MarketWatch in an interview. “It’s great that there’s no interest on it, but it’s a balloon payment, and borrowers need to understand what a balloon payment is.”

A balloon payment refers to a bigger-than-usual one-time payment that is required by the lender at the end of the loan term, according to the Consumer Financial Protection Bureau.

On its website, UWM states in the fine print at the bottom of the page that the second loan “has no minimum monthly payment requirements, a term of 360 months and is fully due as a balloon payment upon the occurrence of either a refinance of the [first mortgage], [or] payoff of the [first mortgage] or the final payment.”

Not Like 2008?!

Housing prices are stretched
The economy is slowing
The lender has no cushion against falling home prices
There are indications of steeply falling homes in many markets.

OK, we don’t have massive liar loans like we did in 2008. But mortgage affordability is the lowest ever, and unemployment is starting to tick up."

See Shedlock's full article for additional data and warnings.

In the "Where To Invest Department" contributor Fred Fuld III finds Grocery Stocks: A Stable Choice For Uncertain Times.

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"During economic downturns, people tend to modify their spending habits, including their grocery shopping behavior. While they may cut back on more expensive foods, they will still continue to buy essentials from grocery stores. This behavior supports the stability of grocery stocks for several reasons:

Shift to Economical Options: Consumers often switch to more economical food options, such as generic brands, discounted items, and bulk purchases. This shift ensures that grocery stores maintain steady sales volumes even if the average transaction value decreases.

Increased Coupon Usage: During recessions, people tend to increase their use of coupons and seek out sales more frequently. This behavior drives traffic to grocery stores and supports consistent sales levels.

Essential Nature of Food: Regardless of economic conditions, food remains a necessity. This ensures a continuous demand for grocery products, helping grocery stores maintain revenue streams and supporting their stock prices.

Listed below are the top five Grocery stocks:

Albertsons Companies, Inc. (ACI) is a prominent American grocery company headquartered in Boise, Idaho. Founded in 1939, Albertsons has grown to become one of the largest food and drug retailers in the United States. The company operates over 2,200 stores across 35 states and the District of Columbia under 20 well-known banners, including Safeway, Vons, Jewel-Osco, Shaw’s, and Acme. Albertsons combines a strong local presence with national scale, providing a wide range of products and services to meet the diverse needs of its customers. The company’s approach focuses on being “locally great, nationally strong,” leveraging its extensive network to deliver quality and value

Grocery Outlet Holding Corp. (GO) is an American discount closeout retailer founded in 1946, specializing in offering deeply discounted, name-brand consumables and fresh products. The company operates through a network of independently owned and operated stores across the United States. Known for its “extreme value” retail model, Grocery Outlet provides customers with savings of 40-70% compared to conventional grocery stores by sourcing overstock and closeout products. Headquartered in Emeryville, California, the company continues to grow its footprint, appealing to value-conscious consumers looking for quality products at lower prices.

Kroger Co. (KR) headquartered in Cincinnati, Ohio, is one of the world’s largest food retailers, operating approximately 2,750 grocery retail stores under various banner names including Kroger, Ralphs, Dillons, Smith’s, and King Soopers. With fiscal 2022 sales of $148.3 billion, Kroger provides a wide range of products and services through combination food and drug stores, multi-department stores, and price-impact warehouses. The company also offers seamless digital shopping options, enhancing customer convenience through its robust online and delivery services. Kroger’s extensive reach and diverse retail formats make it a significant player in the grocery industry.

Sprouts Farmers Market (SFM) is a Phoenix-based specialty retailer focusing on fresh, natural, and organic food. Founded in 2002, Sprouts aims to make healthy living accessible to everyone by offering a wide selection of fresh produce, bulk foods, vitamins and supplements, packaged groceries, meat and seafood, deli, baked goods, dairy products, frozen foods, body care, and household items. With a commitment to sustainability and community wellness, Sprouts operates hundreds of stores across the United States and is known for its farmer’s market-style shopping experience that emphasizes quality and affordability.

Weis Markets, Inc. (WMK) is a mid-Atlantic food retailer headquartered in Sunbury, Pennsylvania, founded in 1912. The company operates over 200 stores in Pennsylvania, Maryland, Delaware, New Jersey, New York, Virginia, and West Virginia, providing customers with a wide range of grocery products, including fresh produce, meat, dairy, and baked goods. Weis Markets is committed to delivering an exceptional shopping experience by focusing on high-quality service, value, and fresh products. The company emphasizes community engagement and sustainability initiatives, making it a reliable and respected player in the regional grocery market."

Caveat Emptor.

That's a wrap for today.

Have a good one.

Peace.