It was another great session yesterday for a market that wants to go higher. Right now, the might of the Street wants to push the market lower, but like the story of The Little Dutch Boy that saved the town of Haarlem by sticking his finger in a leaky dike. The thing is real-life dikes don’t like a finger that could stop a crumbling dike, and The Little Dutch Boy was the creation of an American author.

Inflation Scare Fades

Speaking of leaking dikes, the negative Core Producer Price Index (PPI) and the Consumer Price Index (CPI) may just be the start of an avalanche of disinflationary action. 

• S&P 500 (SPX) +1.33%   
• Russell 2000 (RUT) +1.30%
• Dow Jones Industrial Average (DJI) +1.14%
• Bitcoin (BTC) +1.60%
• Nasdaq-100 (NDX) +2.03%

S&P 500

Eleven of twelve sectors finished higher, with the top three growth sectors leading the way.

NASDAQ Non-Stop

Like old-school disco music, where the beat was strong, steady, and seemed to last forever, the big names in the NASDAQ Composite are partying like it is 1979 or 1999, or even 2021 once again.

• These names are beasts and show no signs of slowing down.
• Meanwhile, Wall Street’s big bet on value is stumbling badly.

Technical View

The Nasdaq-100 (NDX) is on the cusp of a major breakout and could have coattails that lift the broader market.

Keep an eye on market breadth – we need to see more names join in the upside move.

Today, it’s all about bank earnings and retail sales

Portfolio Approach

 

There is no sector weighting change to our Hotline Model Portfolio this morning.

Today’s Session

All the major banks posting results this morning beat consensus, with JP Morgan (JPM) leading the way with a monster beat and upside guidance.

Key observation from JPM

"The U.S. economy continues to be on generally healthy footings—consumers are still spending and have strong balance sheets, and businesses are in good shape. However, the storm clouds that we have been monitoring for the past year remain on the horizon, and the banking industry turmoil adds to these risks. The banking situation is distinct from 2008 as it has involved far fewer financial players and fewer issues that need to be resolved, but financial conditions will likely tighten as lenders become more conservative, and we do not know if this will slow consumer spending. We also continue to monitor for potentially higher inflation for longer (and thus higher interest rates), the inflationary impact of continued fiscal stimulus, the unprecedented quantitative tightening, and geopolitical tensions including relations with China and the unpredictable war in Ukraine. While we hope these clouds will dissipate, the Firm is prepared for a broad range of outcomes, and we are confident that we can serve the needs of our customers and clients in all environments."

Bank Financials	Revenue	Earnings
JPM	Beat	Beat $0.73
PNC	In-line	Beat $0.34
C	Beat	Beat $0.17
WFC	Beat	Beat $0.11

Not only do these large banks have an advantage in terms of size, but the greater advantage is a perceived notion they are guaranteed by the Federal government.  Treasury Secretary Yellen worked hard sending the message that depositors at major money center banks cannot lose money.  The implicit guarantee is aimed at accounts greater than the $250,000 FDIC cap that covers every single depositor.

Yet, folks with far less money in the bank (the average account is $42,000) do not seem to know or trust the FDIC insurance plan and have moved their cash over to banks that are covered.  The said irony is these large banks don’t pay squat on deposits. 

For those seeking yield, the return of alternatives has been the bigger driver of deposit-flight.  It began with the aggressive rate hiking cycle of the Fed (but they will not accept any blame) and has only picked up over the past year.

It’s smart to seek yield, but the government (Federal Reserve and Federal government) has made a mess of all of this, and smaller banks will struggle to survive.

Money Market Flows

The US Consumer

JP Morgan portrays consumer as strong based on the data below, but credit card use of late and charge offs are red flags.

Debit & Credit

• +10% q/q
• +45% 3/y

Charge offs

• +67 bps 6/m
• 2.1% still 120 bps below 2019

Retail Sales

Retail sales data was weak for the month of March, but surprisingly to the upside once auto and gas is excluded.

• Retail Sales -1%; consensus -0.5%
• Retail Sales ex. Autos, gas -0.3%; consensus -0.6%

March Monthly Sales Retail & Food Services	M/M	Y/Y
Headline	-1.0	+2.9
Motor Vehicle & Parts	-1.6	+0.1
Furniture	-1.2	-2.4
Electronics	-2.1	-10.3
Building Materials	-2.1	-3.5
Food & Beverage (at home)	-0.1	+5.0
Health & Personal Care	+0.3	+7.1
Gas Stations	-5.5	-14.2
Clothing	-1.7	-1.8
Sporting Goods	+0.2	+3.0
General Merchandise	-3.0	+2.4
Department Stores	-2.5	-1.2
Internet	+0.2	+1.9
Food & Beverage (away from home)	+0.1	+13.0

The numbers sent the dollar and yields higher.

Comments

Thanks Charles. Miss your little sector box in your emails though. Provides a nice glance of your thoughts on the market. Chuck on 4/14/2023 3:31:19 PM

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