May 24, 2024

In what I said would be the second most important event this week after the minutes of the latest Fed meeting yesterday, which did the market little good, NVDA exploded upward after its report last night but unfortunately another unexpected event knocked the market downward yesterday for the worst Dow performance since March 2023 as all 30 members ended lower, which does not happen that often.

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The culprit was another negative inflation report after the market took last week’s milder than expected April C.P.I. numbers as a chance that the Federal Reserve might finally do something to finally get rates lower once again.

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It was an example of how good news for the economy can be bad for the market, as most U.S. stocks slumped after strong economic reports raised the possibility of interest rates staying high. The weakness was widespread and overshadowed another blowout profit report from market heavyweight NVDA.

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The Dow collapsed by 605 points to 39,065 for its worst one-day showing since March 2023 as it could not hold an early gain of 23. The S&P was a solid 34 points up due to the strength of its third most heavily weighted component but it also turned down and ended with a 39 point decline to 5267. The Nasdaq had the nerve to be 198 points to the upside due to NVDA and some of the other large technology stocks but it also gave way but not by so much and ended 33 points down to 16,736.

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The Russell 2000 Index of small stocks continued its recent weak performance with a 33 point loss to 2048 while the VIX moved above its near-term support level with a gain up to 12.77.

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Stocks broadly struggled under the weight of higher yields in the bond market. Treasury yields cranked up the pressure following the stronger-than-expected reports on the U.S. economy, which forced traders to rethink bets about when the Federal Reserve could offer relief to financial markets through lower interest rates.

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One report suggested growth in U.S. business activity is running at its fastest rate in more than two years. S&P Global said its preliminary data showed growth improved f r businesses not only in the services sector but also in hard- hit manufacturing.

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A separate report, meanwhile, showed the U.S. job market remains solid despite high interest rates, as the weekly jobless report eased back to 215,000 which was an indication that layoffs remain low.

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Treasury yields had been close to flat following the joblessness report but turned higher immediately after the report on business activity, which also suggested upward pressure on selling prices remains stubbornly high.

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With pressure on inflation coming from both the manufacturing and service sectors, the final mile down to the Fed’s 2% target still seems elusive as it is trying to pull off the difficult feat of slowing the economy enough through high rates to get inflation back to 2% but not so much that it forces a painful recession. It has been holding its main interest rate at the highest level in more than two decades to do so, and investors are itching for some easing.

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Traders are still expecting at least one cut to rates this year. But traders pulled back on some of those bets following Thursday’s reports while the yield on the 10-year Treasury rose to 4.47% from 4.43% late Wednesday. The two-year yield, which more closely tracks expectations for action by the Federal Reserve, climbed to 4.93% from 4.87%.

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That helped send stocks of utilities and real-estate companies to some of the market’s sharpest losses. When rates are high, bonds pay more in interest and can peel away income-seeking investors who would otherwise buy utilities or real-estate investment trusts for their high dividends.

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The sharpest single drop within the S&P came from LYV which tumbled 8% after the Justice Department accused it and its Ticketmaster business of running an illegal monopoly over live events in the country.

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VF Corp., the company behind The North Face, Vans, Timberland and other brands, fell 3% after reporting a loss for the latest quarter, along with weaker revenue than analysts expected.

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They helped to more than offset a 9.3% leap for NVDA, which delivered its latest knockout profit report late on Wednesday. Its revenue surged 262% in the latest quarter from a year earlier, and its profit leaped an eye-popping 629%. The company’s chips are helping to train artificial-intelligence systems, and there has been voracious demand for them. It also increased its dividend as its CEO touted how “the next industrial revolution has begun” and also announced a 10 for 1 stock split in two weeks.

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The first-quarter of 2024 earnings season is just about over, with retailers continuing to bring up the rear and the schedule for this week is as follows: yesterday – TJX, URBN, TOL, ADI higher and TGT lower; today – NVDA, SNOW, RL and ELF higher and SNPS, BJ, VFC lower; today – INTU, WDAY lower and DECK, ROST and TOST higher.

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Economic reports will have: yesterday - weekly jobless claims were down a little to 215K, April new home sales were the lowest since November at 634K while the two inflation-related reports mentioned above came in stronger than expected; today – April durable goods orders gained for the third straight month at 0.7%, final May U. of Michigan Consumer Sentiment Ind x fell back by 10% this month and inflation readings inched up a bit to 3.5%.