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Morning Commentary

JANET CHANGES COURSE, WHILE SHE WAS CHANGING COURSE

By Charles Payne, CEO & Principal Analyst
5/5/2021 9:30 AM

Some think it was an unforced error, but I suspect U.S. Treasury Secretary Janet Yellen was floating another one those Biden administration trial balloons that landed like a lead balloon. Speaking at The Atlantic’s Future Economy Summit, Yellen admitted interest rates might have to be increased to counter inflationary forces derived from all that government spending.

The following comments were part of a larger sales pitch:

Some think it was an unforced error, but I suspect U.S. Treasury Secretary Janet Yellen was floating another one those Biden administration trial balloons that landed like a lead balloon. Speaking at The Atlantic’s Future Economy Summit, Yellen admitted interest rates might have to be increased to counter inflationary forces derived from all that government spending.

The focus will be on those growth names again today to see if buyers emerge enforce. Most holders of these stocks have grown accustomed to wild gyrations and have profitable mightily for staying the course. Meanwhile, it looks as if Janet Yellen has changed course once again.

Market Breadth

NYSE

NASDAQ

Advancing

1,441

1,173

Declining

1,906

3,050

52 Week High

287

135

52 Week Low

28

106

Up Volume

1.66B

2.32B

Down Volume

2.82B

3.52B

After the close, Janet Yellen spoke at the Wall Street Journal’s (WSJ) CEO Council Summit and made another U-turn on interest rates.

When asked about all the fiscal stimulus and spending on the drawing board, Secretary Yellen said, “I don’t think there’s going to be an inflationary problem, but if there is the Fed can be counted on to address it.” The former Fed chair also said inflation rates are expected to remain low for “structural reasons.”

There is no doubt the Federal Reserve is under tremendous pressure and I’m not sure Yellen did them any favors yesterday.  What we can take away from these contradictory appearances is the administration is determined to reinvent the United States into a greater welfare nation and raise taxes as much as they can get Congress to approve.

Those taxes, while punitive, will not be enough to cover all that cash. In addition to trying to buy votes, the administration believes in Nancy Pelosi’s notion of a multiplier effect. Those food stamp recipients that get one dollar in benefits find a way to spend $1.40. Those who receive recurring checks simply for being Americans are going to spend it big time.

Hence, the near-term consensus is inflation will grow, but the question is how and for how long?  

An Explosion of Fear

Perhaps a bigger question and dilemma for the stock market is how to minimize the taper tantrum. It will be like taking candy from a screaming baby! 

Immediately after Yellen’s “innocuous” comments yesterday, the so-called Fear Index (VIX) took off like a rocket. The VIX finished the session +6.35%, but at one point was up 19.33%.

VIX

Commodities Supercycle Builds Momentum

Steel

U.S. Steel (X) made a monster move yesterday. While it was well ahead in the past, the VanEck Vectors Steel ETF (SLX) has been trailing big-time over the past five years, which means it has a lot more upside potential.  It stands to reason there will be additional strong macro drivers, including an infrastructure plan.

Oil

I mentioned last week the chart for West Texas Intermediate (WTI) was very attractive. Drawdown numbers from yesterday sent crude higher, and they are now on the cusp of a major breakout.  

Message of Market

Although oil had that big move, crude stocks were mostly sideways - some even lower, but that could change quickly. It was all about Materials (see steel comments above), with Vulcan Materials (VMC) leading the way.

S&P 500 Index

 

-0.67%

Communication Services XLC

 

-0.90%

Consumer Discretionary XLY

 

-1.04%

Consumer Staples XLP

 

-0.51%

Energy XLE

+0.06%

 

Financials XLF

+0.80%

 

Health Care XLV

+0.11%

 

Industrials XLI

+0.44%

 

Materials XLB

+1.09%

 

Real Estate XLRE

 

-0.61%

Technology XLK

 

-1.79%

Utilities XLU

 

-0.37%

Portfolio Approach

Yesterday, we took profits in Consumer Staples in our Hotline Model Portfolio. This morning, we are adding to Materials.

After the Close

There were a lot of earnings reports from popular names, and they all had one thing in common; the initial reaction was a move higher in the underlying share price:

I wonder if the Yellen reversal helped these names, as some gave mixed guidance and still saw share prices pop. I think as we move through the rest of earnings season, we might see where stocks were oversold and rebound on the news, even if not as great as expected.

Case in point: Match.com was down $9.51 during the session and popped $4.27 after the close. 

Management signed off with this comment: Looking forward to a summer of love.

I am as well.

Today’s Session

Job Growth

ADP missed the consensus of 850,000 but March was revised higher and upside trend is smoothing out.  The news slowed the bounce this morning and could nudge whisper numbers lower for Friday.

Today’s Session

Job Growth

ADP missed the consensus of 850,000 but March was revised higher and upside trend is smoothing out.  The news slowed the bounce this morning and could nudge whisper numbers lower for Friday.


 

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