Don’t bump your head on the ceiling!

Stocks traded lower yesterday as debt ceiling anxiety remained and Home Depot earnings reminded us that things are not as they were. Happy consumers continued to prop up retailers according to the latest numbers from the Census Bureau.

No time for vacation. There is an old Wall Street saying that says ”sell in May and go away.” That ditty goes way back, and it is based on the assumption that the market tends to underperform during late spring through early fall only to come roaring back into the winter months through… well, May. Enough of that, there is another less-famous, but even more-used adage that goes something like “this time it’s different.” First of all… don’t do that… the selling thing, I mean. You are always better off with a longer-term approach and the numbers support that. To be clear, you still need to be super-diligent and actively manage your portfolios, but a blanket sell into cash will likely give you sub-standard returns.

You have to admit, though, that the urge to sell everything and take a long trip to somewhere without internet coverage seems rather appetizing these days. I was following all the Fed chatter yesterday, SO YOU DIDN’T HAVE TO. Here are the highlights. The hawks were super hawkish and called for more rate hikes as soon as next month! No pausing and certainly no cutting. The moderates struck a more cautious tone. The banking sector’s March madness was still firmly a drag factor on the economy in their minds. Further, their views generally accept the reality that the current level of restriction will take time to play out in the economy, rightly so. So, the doves, if you can even call them that, are in favor of the wait-and-see approach, but none of them advocated for any rate cuts for the year. This, of course, is at odds with the futures and overnight swaps markets which expect Fed Funds to be ¾ of a percentage point lower by New Years 2024. To sum it up, there are enough differing opinions to keep things up in the air for future rate hikes. Sorry, that is so ambiguous, but I think that the Fed actually plans it that way so that we don’t all rush out and start spending money like it grows on trees.

Speaking of spending money, yesterday’s Retail Sales figure showed that consumers spent +0.4% more in April than in March. So much for restrictive monetary policy. Now, to be fair, the figure was lower than what economists were expecting and there is a clear trend that we are spending less on things, but we are still spending more on services. Consumption makes up around 2/3 of GDP, so that is a somewhat healthy sign for an economy that has a growing number of economists expecting it to contract later this year. The downside of the Retail Sales figure is, of course, the potential to keep inflation… inflated. Can you hear the hawks squawking? That was good enough for the US Treasury 2-year Notes to add +7 basis points in yield. But that wasn’t the only thing pressuring Treasury yields higher.

There is that nasty debt ceiling thing that continues to weigh on markets. Congressional leaders locked themselves in the White House with the President yesterday to try and come to an agreement, but we were in receipt of no information until just after the market closed. That information was more rhetoric than anything useful, but Speaker McCarthy did say that it was possible to deliver a fix by as soon as Friday… though the two sides were still far apart. Useful? You decide. On that, bond markets have certainly put their vote of confidence in. With just days to go before the Treasury must make “tough choices” according to Janet Yellen, 1-month Treasury Bills have spiked in yield. They are currently around +150 basis points higher than they were a month ago. You see, bill investors require more yield to compensate for the risk that the Treasury may be late on its payment. Imagine getting paid 5.5% to lend your money to the Government for 30 days, but only 3.83% to loan it to the same government for 30 years.

The non-Wall Street saying “patience is a virtue” seems the most appropriate rout to take these days. For now, stay focused and perhaps, enjoy some of the beautiful bounties spring has to offer.

YESTERDAY’S MARKETS

Stocks traded lower yesterday with intense selling into the close as debt ceiling anxiety prevailed and Fed hawks warned of more hikes. The S&P500 fell by -0.64%, the Dow Jones Industrial Average dropped by -1.01%, the Nasdaq Composite Index slipped by -0.18%, and the Russell 2000 Index declined by -1.44%. Bonds fell and 10-Year Treasury Note yields added +3 basis points to 3.53%. Cryptos fell by -1.22% and Bitcoin lost -1.46%.

NEXT UP

• Housing Starts (April) is expected to have declined by -1.4% after pulling back by -0.8% in the prior period.
• Building Permits (April) may have remained unchanged after falling by a revised -7.7% in March.
• After the closing bell earning: Cisco Systems and Synopsis.