E-mini S&P 500 Futures (June): Settled at 4158.25, down 27.50
E-mini Nasdaq-100 Futures (June): Settled at 13,536, down 254
Tech led things lower yesterday with several factors weighing on the tape. The Nasdaq lost as much as 3% and the S&P 1.5% before buyers pared the day’s losses with a strong close. We’ve been calling for a choppy start to May as the market digests April’s gains, and Monday’s soft close alluded to many investors broadly taking the same approach.
With the market vulnerable, news of a Chinese aircraft in Taiwan airspace was the type of headline we always talk about: something that would otherwise be ignored mid-climb, but a straw that breaks the camel’s back, so to speak, during periods of retreat. Although a healthy 1.5% pullback is certainly not breaking the camel’s back.
After the lower open, U.S. Treasury Secretary Janet Yellen made a slip, saying “rates may have to rise to stop the economy from overheating.” With Yellen’s years of experience knowing that markets can live on her every word, was this a slip at all? Additionally, Dallas Fed President Robert Kaplan reiterated that it's time to begin discussing a taper.
The Treasury Secretary doesn't make monetary policy, nor does Kaplan, a known hawk and not a Fed voter until 2023. This is exactly the Jekyll and Hyde probing we’ve been expecting. Without increasing measures, the Fed was as dovish as they could be in their meeting last week. They’ll now test the market’s resolve slowly and cautiously by introducing less dovish and sometimes even hawkish anecdotes.
Bill Baruch joined CNBC’s Trading Nation yesterday to discuss the divergence amid social stocks Facebook and Twitter.
Yesterday’s low of 4120.50 came at 10:30 a.m. CT, 2 hours after the opening bell. In our technical section yesterday, we said “a failure to follow through in the first few hours of trade will quickly build added strength in a broad region of support,” referring to major 3-star support at 4153, a level sliced through on the opening bell, and then 4118.50-4120. We added that although we had taken a slightly bearish bias to start the week, the market is unquestionably in a longer-term uptrend and we hate fighting the trend. Now, we don’t believe May’s choppiness has ceased, but the S&P’s 2% range to start the month sets the table for exactly what we’ve been expecting.
The first look at April jobs via the private ADP Report showed 742,000 added, below the 800,000 expected. The soft read jolted stocks for an uptick. We now look to data on the services sector, with final April PMI released at 8:45 a.m. CT and the more closely-watched ISM Non-Manufacturing read followed at 9:00 a.m. CT. Chicago Fed President Evans spoke at 8:30 a.m. CT. After Evans, 2 2022 voters speak: Boston Fed President Rosengren at 10:00 a.m. CT and Cleveland Fed President Loretta Mester at 11:00 a.m. CT.
On the earnings front, GM is up about 3% after doubling EPS estimates. PayPal and Bookings report after the bell and will set a tone for companies within their respective spaces. Lyft beat earnings yesterday and has gained $4 ahead of the bell, and Uber reports after market close but has followed suit by gaining more than 3%. (Disclosure: Blue Line Capital owns PayPal, Square, and Expedia)
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