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Morning Commentary

POWELL RULES THE GALAXY †

By Charles Payne, CEO & Principal Analyst
5/6/2022 9:40 AM

One day it appears he saved the galaxy, then the next day, the galaxy is on fire ,and planets are wiped out of existence. There is a lot of debate over Powell’s performance and intentions then and in the future. But one thing is not up for debate - he is all-powerful and has everyone’s attention.

Every Confirmed Race Thanos Wiped Out Before Infinity War

It’s hard to believe more than a thousand stocks advanced yesterday – I didn’t see them.

Market Breadth

NYSE

NASDAQ

Advancers

395

781

Decliners

2,933

3,959

New Highs

53

22

New Lows

379

653

Up Volume

324.85 million

910.39 million

Down Volume

4.76 billion

4.44 billion

Falling in love, it was easy at the start

I thought I had it in my hands

Something went wrong, somewhere we lost a part

It was more than we could stand, yeah

-Let the Feeling Flow - Peabo Bryson

Pygmalionism

The act of falling in love with one's creation. The term is derived from Greek mythology, in which Pygmalion fell in love with a statue of Aphrodite that he had sculpted.

Agalmatophilia aka Pygmalionism. This reminds me of someone :  r/theumbrellaacademy

Therein lies the biggest problem facing the market. Jay Powell hates the idea of removing accommodation that he helped to create. He has been so proud of his work and all his good intentions. Then, in January 2019, Powell had an epiphany that hit him like a bolt of lightning.

He could craft the Fed policy in a way that would help all people.

He had to swell the wealth effect, which eventually reached all people in society. No easy task since half  the public doesn’t have stocks. Still, a pot of gold sprinkled over the nation was bound to touch everyone, and so it did.

But Powell didn’t count on someone else sprinkling trillions into the economy simultaneously, and once the powder keg of runaway inflation sparked, he lost control.

The market woke up yesterday with the realization Powell will never stop loving his creation.

Heat Map

Once again, there was nowhere to run and nowhere to hide. Defensive sectors and Energy (XLE) gave up gains, but the concentration of selling happened in the three growth sectors of the S&P 500.

Interestingly, Financials (XLF) took it on the chin even as the yield on the ten-year bond spiked above 3.00%.

 

Specks of Green and big chunks of red tell the story of shared misery:

S&P 500 Map

Consumers Tapped Out Already?

We keep hearing about the trillions that Americans have socked away, and while that might be the aggregate number, it’s highly doubtful that middle- and lower-income households are sitting on big cash piles.

What’s intriguing is how much Internet stocks are getting hammered, including Etsy (ETSY) and Wayfair (W), which helped drive down the Online Retail Index below a key resistance/support point.

Chart

Key Charts

ARKK Innovation (ARK) is ground zero for flushing out new investors. This beast must die in the eyes of so many pros on Wall Street because it would be a stake in the heart of overzealousness, and the pros have been jealous of Cathie Wood’s success.

The key support point finally failed in late April; since then, it has tried, but it has been unsuccessful in being able to get back over what has now become a staunch resistance point.

Chart

Fear Mongers

Frustration on the Street over a lack of fear and panic is palpable. Certainly, there wasn’t a corresponding reaction in the so-called “fear index” to the carnage in equity markets.

Chart

Wrapping Up the Week

Key support points have been breached in many indices, but the S&P 500 is holding up. We’ll see what the reaction is to the jobs report, but at some point, I suspect conventional thinking will shift over to an assumption we are amid peak inflation. 

Meanwhile, I keep wondering if maybe Jay Powell actually won yesterday?

He got a big selloff, and there is more trepidation in the air, and without a doubt, the so-called wealth effect is under considerable strain.

Portfolio Approach

We closed a position in Communication Services this morning in our Hotline Model Portfolio.

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Today’s Session

Equity futures erased hefty losses in front of the jobs report, but after a few moments to digest the data, equity futures resumed the move lower.

There are two ways to read the data…you guessed it…from a Wall Street perspective and Main Street perspective.  The street is looking at all economic data through the lens of the Federal Reserve.

Jay Powell made it clear he wants to see steady labor growth (check), slower wage growth (check), and greater participation (missed).

When there is lack of clarity, the market will choose to move lower.

Headline 428,000 net jobs

This number is seen as good, but it’s still odd to me to have a record 11.5 million job openings and just four hundred thousand jobs created.

United States Non Farm Payrolls

Wages +5.5 from year ago +0.3 from month ago

The street was looking for wages to grow +0.4% month to month. In addition to that missing month to month, the sobering reality is inflation is well above 5.5%, which means most American got a pay cut in real life.

United States Average Hourly Earnings MoM

Participation -353,000 rate down to 62.2 from 62.4

The only thing more puzzling to me than why people aren’t going back to work in droves is how they can afford to sit it out.  All racial demographics saw higher participation except White Americans, which swooned to 61.9 from 62.3.

United States Labor Force Participation Rate

Treasury Bonds Keep Surging

I know a lot of charting purist were offended when logarithm versions of the ten-year bond yield made the rounds, but the implication has been spot on.

After breaking through the forty-year trend line, the upper swing has gained more ferocity.

 

 

 


Comments
Powell is a political hack, nothing more.

David Hekhuis on 5/6/2022 10:35:07 AM
Good Intentions? What's that famous phrase?...Oh Yeah, "the road to hell is paved with good intentions." CP, on a personal note, I was thinking more like....You know I can be found. Sitting all alone. If you can't come around. At least please telephone. Don't be cruel to a heart that's true. Elvis, The King, Presley. CH

Charles Haselberger on 5/6/2022 10:59:21 AM
This morning the QQQs were trading around where they were in August of 2020. Today is a good day to accumulate a few shares as well as writing calls on FSR - June 12.5 Calls Exp. 6/24 bringing in .80

christopher voccola on 5/6/2022 11:17:30 AM
One can clearly see, from jay's performance under the previous admin...Jay is truly partisan

Patrick J Pedley on 5/6/2022 11:47:37 AM
 

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