3 Things… (Happy Memorial Day Weekend–We Will Be Closed Monday as will the Markets)

1. Trends/Bonds: S&P500 improved to 7.51% from 13% below its 200 with a downtrend but momentum flirting with turning positive; NASDAQ improves to 18% from 21.4% below its 200 with a strong downtrend intact but momentum flirting with positive; 11% of the NASDAQ and 28% of the S&P500 are above their 200-Days; 21% and 32%, respectively, are above their 50-Days; Bulls20:Bears54; VIX 26; [1] The yield on the benchmark 10-year Treasury note fell to 2.73%. The yield on the 30-year Treasury bond moved lower to 2.95%. Yields move inversely to prices and 1 basis point is equal to 0.01%. [2]
2. Sectors: Best 1-month sectors: Energy (+16.66%), Utilities (+2.95%), Communications (+1.91%), Materials (+0.81%); Crypto/Bitcoin seems rangebound between $29,100 and $30,700; [3]
3. Structured Note Values
   1. KRE Pricing Value 2/28/22: 73.49, Current 59.19-Delta -13.72%
   2. XLE/XOP Lowest, XLE Pricing Value 3/25/22: 78.75, Current: 86.47, Delta +9.97%; XOP Observation Value 3/25/22: 138.60, Current Value: 150.41-Delta +8.45%
   3. Lower of GDX/GDXJ; GDX Pricing Value: 4/29/22: 34.99, Current: 32.64 Delta -6.72%; GDXJ Pricing Value 4/29/22: 42.95, Current: 40.07 Delta -6.71%
   4. Lower of GDX/GDXJ; GDX Pricing Value: 5/26/22: 32.39, Current: 32.64 Delta +0.77%; GDXJ Pricing Value 5/26/22: 39.67, Current: 40.07 Delta +1.01% [4]

This Week’s Quotable

“We think there’s a good chance for some more strength here. This is sort of a classic bear market rally or bounce off the bottom. Inflation expectations have rolled over recently.” –Troy Gayeski, chief market strategist for FS Investments, told CNBC’s “Closing Bell: Overtime” on Monday, updated on Thursday. [5]

Recent Highlights

• Core PCE Inflation rose 0.3% (05/27)
• Personal Income increased 0.4% (05/27)
• Personal Spending increased 0.9% (05/27)

In the Markets

Wall Street closed sharply higher on Thursday resembling a correction rally in a highly oversold market. Market participants sentiments have been boosted following the Fed’s FOMC minutes and strong earnings results by some major retailers. All three major stock indexes ended in the green.

How Did The Benchmarks Perform?

The Dow Jones Industrial Average (DJI) appreciated 1.6% or 516.91 points to close at 32,637.19. Notably, 27 components of the 30-stock index ended in positive territory while 3 in negative zone. The blue-chip index posted a 5-day winning streak, the longest since Mar 23.

The tech-heavy Nasdaq Composite finished at 11.740.65, climbing 2.7% or 305.91 points due to the strong performance of large-cap technology stocks.

Meanwhile, the S&P 500 advanced 2% to end at 4,057.84. Ten out of 11 broad sectors of the benchmark index closed in positive zone while one ended in red. The Communication Services Select Sector SPDR (XLC), the Consumer Discretionary Select Sector SPDR (XLY), the Financials Select Sector SPDR (XLF), the Industrials Select Sector SPDR (XLI)  and the Technology Select Sector SPDR (XLK) rallied 2.4%, 4.9%, 2.3% and 2% and 2.4%, respectively.

The fear-gauge CBOE Volatility Index (VIX) was down 3.1% to 27.50. A total of 11.43 billion shares were traded Thursday, lower than the last 20-session average of 13.22 billion. Advancers outnumbered decliners on the NYSE by a 5.16-to-1 ratio. On Nasdaq, a 2.95-to-1 ratio favored advancing issues.

A Relief Rally

Wall Street has seen extreme volatility in the last couple of months on concerns of soaring inflation, an ultra-hawkish Fed and a near-term recession. This week U.S. stock markets have seen a relief rally. Weak to date- the Dow, the S&P 500 and the Nasdaq Composite – are up 4.4%, 4% and 3.4%, respectively. Investors’ confidence was further  bolstered following the release of the Fed’s May FOMC minutes. The minutes also said, “a restrictive stance of policy may well become appropriate depending on the evolving economic outlook and the risks to the outlook.”

Following the release of minutes, market participants expect that the central bank may not turn too tough in its monetary stances so that the economy will be pushed into a recession.

Strong Retail Earnings

Market participants were concerned about the slowing growth of the U.S. economy after several retail behemoths have revealed in their earnings report that mounting inflation and shortage of labor are eating their profits. Moreover, they warned that consumers are gradually shifting from purchasing discretionary items to necessary goods, especially groceries.

Economic Data

The Department of Commerce reported that the U.S. GDP was contracted by 1.5% in first-quarter 2022 compared with 1.4% reported earlier. The consensus estimate was for a fall of 1.3%. Higher consumer spending was more than offset by weak business and private investment. Growing trade deficit was another negative for GDP’s growth.

The Department of Labor reported that weekly jobless claims fell by 8,000 to 210,000 for the week ended May 21. The consensus estimate was 218,000. The 4-week moving average was 206,750, an increase of 7,250 from the previous week’s data of 199,500. Continuing claims (those who already received government benefits) increased to 1.346 million for the week ended May 14. Previous week’s data was revised downward to 1.315 million from 1.317 million reported earlier.

The National Association of Realtors reported that its Pending Home Sales Index dropped 3.9% to 99.3 in April. The consensus estimate was for a decline of 2%. March’s data was revised downward to a decline of 1.6% from a decline of 1.2% reported earlier. Year over year, the index fell 9.1%. [6]

Sources: [1][3][4] Stockcharts.com; [2] CNBC.com; [5] Stocks rise on slowing inflation report, Dow on pace to snap 8-week losing streak (cnbc.com); [6] Zacks Professional Services, “Today’s Key Market and Economic News” for Friday May 27, 2022;