TSP Talk Blog

Stocks were mixed, flattish, lifeless yet buoyant, all at the same time yesterday while awaiting this week's inflationary data. The Dow had its first losing day after 8 straight gains, the S&P 500, small caps, and the I-fund were flat - probably the most flat that I have ever seen all three funds on the same day. Bonds were up as yields moved slightly lower, and the meme stocks made an appearance yesterday.

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Yesterday was another calm day before this week's potential storm starting today with the PPI (Producers Price Index) and then the CPI (Consumer Price Index) on Wednesday. The entire financial world is anticipating the data and wondering, will they or won't they, referring the to Federal Reserve and if they plan to announce a rate cut in June, or perhaps later in the year. These reports may give investors more of an idea about what to expect.

The jobs report on May 3rd came in weaker than expected and since then the stocks market has rebounded strongly, so that's the game we're playing right now where strong economic data is bad, and weak data is good. Although in the case of the CPI and PPI it's about pricing. Higher prices are normally good for business, but it means trouble for stocks because it could mean no interest rate cut in June.

The 10-year Treasury Yield was down slightly and it has been holding near its 50-day moving averages (blue is the simple average and purple the exponential average.) It's holding firm but so far not much of an attempt to bounce off that support. You can see below that these averages can be meaningful pivot points, whether they hold or break.




The dollar (UUP) was down slightly and it has been drifting lower since mid-April, but up since the recent lows. It looks like it is trending lower but because of what we see from the Fed balance sheet, I'm inclined to think this could be a bull flag that will eventually move higher.



The Fed has been consistently reducing their balance sheet over the last year or more, in an attempt to take liquidity out of the system and thwart inflation. This is in essence quantitative tightening.

"Roaring Kitty", who used to post on the Reddit boards about Gamestop's stock before getting into some trouble, started posting again on X (Twitter) for the first time in three years. It's hardly exciting news and the posts were mostly noise, but it sure got some traders excited as the old meme stocks Gamestop (GME) and AMC were soaring yesterday, up 74% and 80% respectively.



There was a lot of call options activity a couple of weeks ago on these making the move a little suspicious.

The interesting part of this to me is that this type of behavior in stocks shows a "risk on" approach to stocks picking, but that also tends to come toward the end of a bull market cycle.

The PPI report comes out before the opening bell so we could see a big move one way or the other to start the day, and the CPI report on Wednesday could be even more important.

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The S&P 500 (C-fund) is climbing that wall of worry and the worry of the day is the PPI data. The PPI and tomorrow's CPI could help push the index to new highs, or send to a double top pullback. Or both, as we could see a fake out in one direction or the other on the news, get investors leaning one way, and then reverse in the other direction. These things never seem to go exactly as you expect. I know I have been going a little bearish on you recently, but that was more macro and valuation related. As far as the charts go, if they start in the bottom left hand corner and end in the top right, it's hard to deny it's a bull market. The action over the last couple of weeks has made quite a difference.




DWCPF (S-fund) has been churning sideways for the last week, while drifting up the rising trading channel. The open gap on this chart is less than 2% away, so there may be an effort to get this filled this week - an options expiration week.




The EFA (I-fund) was flat like the US stocks. It has been able to hold above those previous highs for a 3rd straight day making the breakout more compelling, but again the inflation data may have the final say as it could move the dollar enough to influence this chart quite a bit.




BND (bonds / F-fund) was up yesterday but it closed well off the highs of the day, and near the lows. It too has been moving sideways, perhaps creating a bull flag for a breakout, but for that to happen the 10-year yield would probably have to fall below 4.40%. It is currently 4.48%.




Thanks so much for reading! We'll see you back here tomorrow.

Tom Crowley


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