Good morning contrarians!
It’s Friday, May 13. Great day for a meltdown. As of 0615, stock futures are pointing to a higher open however. Tech stocks are leading things out, with the Nasdaq up 1.6%. S&P 500 futures are up 1% with Dow Industrials up a little less.
Among individual stocks, Twitter (TWTR) is getting dumped, down more than 20% after Elon Musk said his deal to take over the social media company is “temporarily on hold.”
Cryptos are going along for the ride higher in the pre-market, with bitcoin up 9% to trade around 30,400. So the 30,000 level has been topped again, for now.
Bonds are selling off a bit, following the traditional risk-on pattern. The 10-year yield is up 8 basis points to 2.90% whilst the 2-year is up 6bps to 2.58%. Yields move inversely to prices.
Commodities are bouncing a bit with WTI crude up 1.5% to trade around $108/barrel. That’s a lot higher than it has been recently.
Economic Data
The University of Michigan releases its Consumer Sentiment report for May at 1000. There are two of these each month with the first one (this one) the more forward-looking one. About 500 consumers are polled for this, all over the last week or so.
The report produces a couple of numbers on a 1-100 scale: consumer expectations, consumer sentiment, and current conditions. It also includes inflation expectations for the immediate and five-year term.
As you can see, the figure tends to correlate pretty well with the broader economic picture. And right now the number is right at its lowest point in the last decade (if you take the three-month moving average. Blue line above). Would maybe not read too much into that, as the first half of 2021 was surely more positive for consumers than the middle part of last decade, but it is telling that sentiment has dropped so much since mid-2021.
Economists expect today’s sentiment index to come in at an even 64, down a bit from the 65.2 produced last month. The consumer expectations figure is expected to print at 63 versus 63.5 in April, so roughly unchanged.
We also have import and export prices for April, out at 0830. This can be seen as another inflation gauge, though one that is even less watched than the PPI from yesterday. For whatever reason economists expect both import and export prices to have increased far less than last month, namely by 0.6% (imports) and 0.7% (exports) versus 2.6% and 4.5%, respectively, in March. Perhaps that was a one-time shock due to the war in Ukraine?
The Bottom Line©
Things appear to have stabilized a bit. But remember what happens in bear markets: buying in the pre-market and at the open, followed by selling during the regular session and into the close. Yesterday was a bit of an outlier in that markets stabilized in the last hour and even eked out some gains.
Is there more fear lurking out there? How damaging have the losses been so far? Anecdotally I can tell you at this Vegas conference there are reports of many cancellations due to the market activity. They were originally expecting a much bigger crowd. But then Vegas itself is packed again and looks basically exactly like it did the last time I was here, in spring 2019. My Uber driver said things are back to normal.
It does take a little while for things to trickle down to the “regular economy.” Maybe that won’t even happen? These are all questions nobody has the answers to. So remember to do your own research, and make your own decisions.
Consumer Sentiment: Daily Contrarian, May 13 (Friday)