Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets. It is Friday, May 27. The Bottom Line segment of today’s podcast starts at (2:57) for listeners who want to skip ahead. Be sure to check out the new ‘One Year Ago Today’ segment at the bottom of this page.
State of Play
Stocks sold off yesterday as Nvidia (NVDA 0.00%↑) earnings failed to carry the rest of the market. Reasons for the sell-off were not immediately obvious. Purchasing Manager Indexes came in well ahead of forecasts, which may have created ‘higher for longer’ Fed fears. Bonds sold off as well as stocks, so there may have been something to that. As we look at our board of indicators at 0640, it’s a bit of a mixed bag:
Stock index futures are pointing to modest gains with S&P 500 (SPY 0.00%↑) and Nasdaq up about 0.3% each;
Commodities are down. WTI crude oil is down 1% to trade around $76/barrel, which is the lowest it’s been in a couple of weeks. Copper is unchanged;
Bonds are unchanged after selling off. The 2-year yields 4.92% whilst the 10-year yields 4.48%;
Cryptos are dropping, with Bitcoin down 3% to trade around $67,500.
Today’s Known Events
It’s the first unofficial Friday of summer ahead of a long holiday weekend here in the US. For this reason one would expect things to be quiet.
Indeed there’s very little on the calendar. Durable goods orders are out at 0830. These are expected to decline by 0.9% month-over-month after increasing by 2.6% last month. Core durable goods orders, which exclude transportation items, are expected to increase by 0.1% after a 0.2% rise last month.
Slim pickings in the earnings department: Booz Allen Hamilton (BAH 0.00%↑) and Mesa Laboratories (MLAB 0.00%↑) are the only ones with any analyst coverage.
The Bottom Line©️
So a quiet summer Friday then? Yesterday’s sell-off gives The Contrarian pause in making such a prediction. He was clearly wrong with his view yesterday that “there isn’t anything on the calendar that can change” the bullish direction for stocks. (In fairness, he completely missed the fact that PMIs were even on the calendar).
Might yesterday’s market move have been an overreaction? We were due for a pullback and the ‘higher for longer’ Fed fears are absolutely nothing new. It seems every now and then investors decide to worry about this. It’s all a bit silly. Even if the Fed does have to hike rates again, will that necessarily be a bad thing where the long term health of the US economy is concerned? One could certainly argue that cutting rates would be the bigger policy mistake.
Sure, eventually the economy will grind to a halt and roll over. That will bring its own set of challenges, but also its own set of opportunities. We aren’t there yet. Who knows how close we might be. The point is that for now, the argument can be made that pullbacks should be viewed as opportunities.
One Year Ago Today…
Debt ceiling concerns were front and center. The Contrarian considered the Fed and the AI narrative more powerful narratives for the medium term (Daily Contrarian, May 24, 2023).
…and What Happened:
The Contrarian was right, though a debt ceiling relief rally would soon give way to selling that lasted most of the summer and into the fall. Finally in November risk appetite re-emerged and that has been the narrative ever since.
Housekeeping
Obviously this is not investment advice (duh). Do your own research, make your own decisions.
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