John Caruso

Senior Market Strategist

Morning Market Update

Market Risk:

*Philly Fed Manufacturing Index (yesterday) -24.3 vs -7.4 exp

*US Household debt climbed to $394B – the largest qq increase in 20yrs.

*GER PPI -1.0% vs -1.6% exp (Euro declined)

Stocks:  Markets whipped around again yesterday following the release of the “hotter” PPI data.  We had 3 approximate 1% reversals yesterday.  Initially the SP500 sold off to 4100, before rallying to 4140, followed by another collapse into the close to 4097.  These are not the traits of a “bull market” despite the SP500 starting off the year +6.5%.  It seems as if risk is now beginning to build once again underneath markets, again this shouldn’t surprise you – we’ve noted the probabilities here every day since the stock rally began at the turn of 2023.  Household debt continues to climb – so when we see conflicting data such as rising debt levels at the household level and strong retail sales on Tuesday (+3.0% mm), it doesn’t take a genius to understand what comes next.  Despite the recent Retail Sales data, THE CONSUMER IS NOT IN GOOD SHAPE despite the narrative.

Yesterday we also heard from 2 hawkish members of the Fed, Cleveland’s Mester and St Louis’ Bullard – both are non-voting members this year.  But whether they have a vote or not, the CME Fed Watch Tool is slowly pricing in 5.50% as the current peak Fed Funds rate.  We noted this earlier in the week, and the market is just waking up to this reality.  Whether the Fed achieves 5.50% or not, I’m not sure – I have my doubts based on where we see Q1’23 US GDP and our growth slowing outlook from here.  With that said, there could be a “watershed” moment for the equity markets if the data decelerates more rapidly from here and the Fed remains tight over the near-term.

VIX:  OPEX on Wed. created artificial vol suppression (alongside massive 0dte option volume on the SPY).  That’s over with now, and we’re up 15% since the Wed expiration

Bonds:  2yr yields back to 4.69% and the 10yr to 3.89%, keeping the curve at a very chilly -89 bps inverted.  Despite this, I’m still toying with the idea of bonds!  Why?  I do think the data continues to decel from here which likely creates that “knee jerk” reaction in the bond market back to the upside.  Honestly, I think present levels of the 10yr and 2yr are likely at very good entry points from an investing point of view – but I don’t have the trend nor the Fed … yet.  Once again, I don’t think this is the year to be fearful of the bond market.  Again, trying to stay patient, just waiting on confirming evidence – we’re getting close in my opinion.

Oil -3.00%

RB -2.75%

Gold -0.77%

US Dollar +0.64% to 104.51 (I remember how much flack I caught for the long dollar call just last month, its ok though – after 20yrs I’m used to it).

I have 2 meetings today, so I’ll be spotty between 9:30 and 11:30am.

Everybody have a great weekend!  I’ll be coaching K-2^nd grade basketball this Saturday – something I never thought I’d enjoy so much.  Go Bruins!

*Lower highs in stock indices – expect another bounce to sell into

*Yields still carving out higher highs in the range

*Gold – we could bounce over the near-term, but the negative divergence of price action and my OB/OS bothers me.  Gold will likely be a good buy alongside bonds eventually.

*Oil- breaking the mid-point from last weeks 8% weekly rise – so long as Oil holds 74-73 is could be ok.  I’d rather buy it above 83.50 on a break out.  Staying away for now