June 21, 2024

The discrepancy between the Nasdaq and the Dow got to such extremes that some sort of correction was inevitable, so after the latter started out with a fast 56 point decline and the former began 74 points higher, things reversed course dramatically and ended with the Dow closing 300 points higher to 39,134 and the Nasdaq ending lower for a 140 selloff down to 17, 721 as that stock which begins with an “N” began higher at a new record of 140.76 and then reversed course downward to end at 130.78 on huge volume of 500 million shares.

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The S&P also started out a bit higher and ended 14 points lower at 5423, putting its seven out of the past eight-week winning streak in danger of being broken, and ditto for the Nasdaq unless things turn around to the upside later today, whose session could be on the volatile side due to what is known as the quarterly expiration which occurs on the third Friday of March, June(today), September and December with the expiration of options on the major indices both in the morning and afternoon for the S&P and individual stock options.

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NVDA gave up that early gain as mentioned and its eight-week winning streak could be in jeopardy if it does not go higher today as the chip company has been the main beneficiary of the frenzy around artificial-intelligence technology, and it had supplanted MSFT on Tuesday to become the most valuable company in the market. It then ceded its top ranking yesterday back to MSFT for those keeping score.

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Its chips are helping to power the move into AI, which proponents see producing explosive growth in productivity and profits, and it is already up 164% this year after more than tripling last year.

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Besides raising worries about a potential bubble where investors’ excitement is getting excessive, the eye-popping gains for it and other AI winners have also helped prop up the stock market despite some weakness in the U.S. economy.

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High interest rates meant to grind down inflation have hurt the housing market and manufacturing, while lower income households are showing signs of struggling to keep up with still-rising prices.

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WGO has been introducing “economical” trailers to attract customers amid “inconsistent retail patterns.” But it said Thursday its profit and revenue for the latest quarter fell short of analysts’ expectation s of the maker of motorhomes and pontoons fell 3.5%.

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In a show of how powerful AI can be, CAN gained 7% even though the consulting and professional-services company reported weaker profit and revenue for the latest quarter than expected. In its earnings report, it highlighted how it won over $900 million in new bookings for generative AI to bring the total for its last three quarters to $2 billion.

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The gains for AI stocks has helped mask some weakness underneath the surface in the market. That can be a worrying signal for market watchers, who would prefer to see a large number of companies pushing the market higher instead of just a handful.

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In the bond market, Treasury yields ticked higher following a spate of mixed reports on the economy. The number of weekly jobless claims came in at 238,000 while the June Philadelphia Fed Manufacturing Survey grew by a paltry 1.3 and May housing starts fell by 5.5% to the lowest since June 2020 and building permits which are an indication of future activity, dropped by 3.8%.

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Of course, none of this had anything to do with yesterday’s violent swing from the opening to the ultimate conclusion which was described above. In fact, according to Barron’s the daily divergence between the Dow and the S&P has taken place only 71 times since 1982, a span of 10,700 trading sessions, so some kind of adjustment seemed to be needed.

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The hope is actually for a slowdown in the U.S. economy’s growth. That could help keep a lid on inflationary pressures and convince the Federal Reserve to cut its main interest rate later this year.

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Fed officials have indicated they could cut their main interest rate once or twice this year, down from its highest level in more than 20 years. Many traders, meanwhile, are expecting two or more cuts, according to data from CME Group.

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The yield on the 10-year Treasury climbed to 4.25% from 4.22% late Tuesday. The two-year yield, which more closely tracks expectations for the Fed, rose to 4.73% from 4.71%.

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Some other central banks have already begun removing the brakes from their economies as for instance the Swiss National Bank cut its main rate on Thursday although the Bank of England kept its main rate steady.

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Stock indexes rose across much of Europe following the moves. The French CAC 40 gained 1.3% to recoup more of its losses from last w the surprising results from elections. Asian indexes were mixed.

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Earnings this week will see: yesterday - DRI and CAN higher and JBL, KR, WGO lower; today – KMX, FDS higher.

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Economic reports are: yesterday – May retail sales rose by 0.1% but ex-autos were lower by 0.1%, May industrial production rose by 0.9% which was the largest increase since last July and capacity utilization increased to 78.7; today – May housing starts down by 5.5% while building permits, an indicator of future activity, was off by 3.8%, weekly jobless claims edged down to 238,000, June Philadelphia Fed Activity Index rose by a scant 1.3; today – May existing home sales were flat, May L.E.I. were lower by 0.1%