/ May 23
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Friday:
New Home Sales (0.69M exp.) -
Friday:
N/A
Daily Briefing
*Yesterday’s session started on a delicate note, as there was some nervous tension emanating from the Treasury market following the news that the House passed the reconciliation bill; that bill, among other things, raises the SALT deduction cap to $40,000 (from $10,000), moves up the Medicaid work requirement date to December 2026 from 2029, and increases the debt ceiling by $4 trillion;
*The Tax Foundation estimates that it will increase long-run GDP by 0.6% and add $3.3 trillion to deficits over the next 10 years;
*While there was some immediate selling in the treasury market, SPY opened around the unchanged mark and tried to rally several times throughout the session; a late selling effort pushed the benchmark ETF to the unchanged mark; technically, there has not been a lot of change, with the retail-driven rally running out of steam; the support / pivot level currently stands at $569, where we would expect a degree of dip-buying to materialize;
*The MACD signal has now normalized as far as the histogram goes and is close to turning negative in the short term; in any case, it’s telling us that the path of least resistance is for lower prices or consolidation in the near term;
*Dark Pools traders did not buy the dip, with most top 20 stocks featuring bearish flows (distribution); the average index for the day was just 42.9%, below the neutral reading of 45%;
*There was some healthy buying activity in stocks like NVDA and TSLA, but healthcare giants LLY and UNH did not garner any significant bids, in the wake of the reconciliation bill;
*After the bill passed, the 10-yr note yield traded up to 4.63% and the 30-yr bond yield went up to 5.15%;
*Those moves triggered some added weakness in the equity futures market, but they started to reverse following a jobless claims report at 8:30 a.m. ET that showed a 36,000 increase in continuing jobless claims to 1.903 million;
*Initial jobless claims continue to run steady at levels that are well below recession-type readings;
*By the time the Treasury market's cash session settled at 2:00 p.m. ET, the 10-yr note yield had retraced to 4.55%, while the 30-yr bond yield backed down to 5.06%; that improvement coincided with a pickup in the U.S. Dollar Index (+0.4% to 99.91) and fostered a recovery move by the stock market, which started the session on a softer note;
*The recovery in the stock market was paced by the mega-cap stocks and the growth stocks, with names like Alphabet (GOOG, +1.1%), NVIDIA (NVDA, +0.8%), and Snowflake (SNOW, +13.4%), which reported earnings and a reassuring outlook, exhibiting relative strength;
*The major indices were plodding along with modest gains, but most of those gains were relinquished in a sell program that hit the market in the last 30 minutes of trading;
*The consumer discretionary (XLY, +0.4%), Transports (XTN, +1.18%), and information technology (XLK+0.03%) sectors, all of which house mega-cap constituents, were the lone sectors to end the session in positive territory; the industrials sector was flat, and the other seven sectors sported losses ranging from -0.1% (materials and financials) to -1.4% (utilities).
*Fiscal worries, the dollar’s imminent demise, and soaring tariff-related inflation expectations are among the concerns driving bond yields higher; at the same time, inflation, the historical determinant of US Treasury yields, continues normalizing; as a bond investor, it is difficult to reconcile facts that argue for lower yields and narratives pointing in the opposite direction; yet that is what the market has to contend with;
*TLT bounced from chart support at $83.9, with yields extremely elevated relative to recent history; both the long and medium term GEX is positive for TLT, arguing for establishing these types of positions if one can stomach the short term volatility;