I am not sure if Fed Chair Jay Powell is a Spiderman fan, but I’m sure Uncle Ben would have told him that with great power, there must also come great responsibility. On that note, his detractors will say his testimony was filled with obfuscation and deflection. Others would say his poise and confidence were just what the doctor (and stock market) ordered.

Some interesting tidbits:

• Long way to go on U.S. economic recovery
• Optimism about the path of the economy and “strong job creation”
• I have a level of confidence in the prediction of transitory inflation
• It may take some patience to see what is really happening
• Economic disparities hold us back – Income inequality harms the U.S. economy
• Very, very unlikely U.S. will suffer 1970s inflation – hyperinflation is contained

Gauging Inflation

We actually use Personal Consumption Expenditures (PCE), not the Consumer Price Index (CPI)…because the weights of both used cars and shelter are much bigger in the core CPI than in the core PCE and because health insurance prices are not included in the PCE.

The comments about favoring core PCE over core CPI are intriguing. In two days, we will get a chance to see if there is any relief. It has to be noted that April’s core PCE saw the highest level of inflation since August 1992.

It’s clear investors liked what Powell had to say, although around 3:30 pm, some started taking their chips off the table. Still, it was a solid session that saw the market get its sea legs and confidence back.

The only losing sectors were defensive in nature:

S&P 500 Index	+0.51%
Communication Services XLC	+0.86%
Consumer Discretionary XLY	+0.94%
Consumer Staples XLP	+0.14%
Energy XLE	+0.67%
Financials XLF	+0.17%
Health Care XLV	+0.22%
Industrials XLI	+0.11%
Materials XLB	+0.40%
Real Estate XLRE		-0.45%
Technology XLK	+0.91%
Utilities XLU		-0.61%

Lots of Green but Coast Not Clear

The S&P 500 Heat Map once again reflected the importance of large companies making large gains.

Some of these large names are breaking out to new all-time highs, and they could be off to the races.

Market breadth is still mixed, and volume is still light; both underscore the timid nature of a market that wants to move higher but isn’t sure the coast is clear.

Market Breadth	NYSE	NASDAQ
Advancing	1,774	2,213
Declining	1,503	2,042
52 Week High	141	124
52 Week Low	18	53
Up Volume	2.02B	2.41B
Down Volume	1.79B	1.73B

Mixed Signals

The NASDAQ Composite closed at an all-time high, yet, the advance-decline line has only deteriorated, and stocks for the entire market trading above their 50-day moving average are down tremendously.

A/D Line NASDAQ

Manufacturing Renaissance

I have been a little on edge about the recent dip in several Federal Reserve manufacturing surveys, but the Richmond Fed beat the consensus with a few positive highlights.

Manufacturing activity for Virginia, Maryland, North Carolina, South Carolina, most of West Virginia, and the District of Columbia rose to a reading of 22, which climbed to its highest since October 2020, powered by a surge in new orders.

A lack of skilled workers remains an acute problem. And yet, wages are surging faster than employment.

Portfolio Approach

Yesterday we closed a position in Technology and added to Consumer Discretionary in our Hotline Model Portfolio.

Today’s Session

It’s been a quiet pre-opening morning with major equities edging higher.  The action in the bond market suggest inflation won’t be a long-term issue but does point to a potential economic slowdown.   

Yield Curve

• 10-year yield drifting lower
• 2-year yield drifting higher

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