Chipping away gains in chips

Stocks rallied yesterday as tech shares dragged indexes higher. Strong economic numbers helped snap a losing streak in equities.

And I’m feeling good… Remember when you were young and a parent, teacher, older sibling, or whomever scolded you for doing something incorrectly? Of course, you do. Naturally, you were unhappy to be admonished, but what really upset you was the knowledge that the person doing the scolding was probably guilty of making the same blunder over and over again… and of course, they would not be called out for it. Come on, you know what I am talking about.

My regular readers know that I am a big fan of the market. I mean, THE Market, as in the collective opinion of all investors and traders. THE Market expresses its opinion in the market. I know this sounds a bit confusing but think about it. When THE Market is bullish, stocks (the market) generally trade higher. If THE Market is expecting a rate hike and the Fed… hikes rates, the market barely reacts. So, as I so often do, make a statement like “THE Market has already factored something in,” I really mean to say that investors are likely already expecting something to happen. That sounds reasonable, because, after all, it is investors, plying the buy and sell buttons on their smartphones that push stocks up and down. That is also why there is a famous Wall Street adage that goes, “the market is always right.”

That is quite true in some sense. You can buy a stock that has absolutely impeccable credentials. The crazy bald guy on TV with his shirt sleeves rolled up and his shirt tails sticking out screams “buy, buy, buy!” You are sure that this one is a winner, but alas, the stock sinks. All your research along with the bald guy’s gesticulating was for nothing. THE Market- and the market doesn’t agree, therefore YOU are wrong, and it is right.

So, how do we know what THE Market is expecting. Well, THE Market is made up of people like you and me, so why not just call up 3,000 random people and ask them if they think that the market is going to be lower, higher, or unchanged in 12 months. You know what, I am going to save you the hassle… actually, The Conference Board will. It conducts a monthly Consumer Confidence survey which includes, among other things, that very question. This month, 34.7% of respondents expected stocks to be higher, 30.2% expected lower levels, and 35.10% expected stocks to be unchanged. If we want to look at this in a positive light, more respondents expected stocks to be higher than lower. If you want to look at this conservatively, you can say that 69.8% of respondents expected stocks to be the same or higher. That makes stocks seem like a good bet… IF respondents- THE Market- is right.

“Hold on, Mark,” you exclaim, “didn’t you just go on about how THE Market is always right?” Yes, I did, but THE Market does make mistakes sometimes, and, like your scolding parent, older sibling, or teacher, you usually don’t hear much about it. So, I suppose that I need to modify the old saying to something like “THE Market is almost always right.” When THE Market is expecting something good to happen and it doesn’t, there is usually pain. Vice versa, when THE Market is expecting something bad to happen and it doesn’t, investors are typically rewarded. Why am I bringing this up? Consumers are beginning to become more bullish about the stock market going forward. Certainly, more bullish than a year ago when only 26.6% of respondents expected the market to be higher and 44.7% expected the market to be lower… the complete opposite of today’s conditions. Well, in that case, THE Market was wrong, the S&P500 is +14.65% higher than it was last June. Don’t expect an apology.

MORNING MARKET MOVERS

NVIDIA Corp (NVDA) is lower by -3.31% in the premarket after The Wall Street Journal reported that Washington was considering closing loopholes which would curb the chip makers ability to sell to China, which makes up 20% of its revenues. Other chip makers are falling premarket along with NVIDIA. Dividend yield: 0.03%. Potential average analyst target upside: +9.0%.

General Mills Inc (GIS) shares are lower by -4.07% after the company announced a revenue miss while beating EPS estimates. The revenue miss is attributed to lower volumes and its inability to raise prices, as it had in past quarters (take note). Dividend yield: 2.91%. Potential average analyst target upside: +3.7%.

YESTERDAY’S MARKETS

Stocks rallied yesterday led by technology stocks in the wake of some positive economic releases. The S&P500 climbed by +1.15%, the Dow Jones Industrial Average rose by +0.63%, the Nasdaq Composite Index jumped by +1.65%, and the Russell 2000 Index advanced by +1.46%. Bonds slipped and 10-Year Treasury note yields gained +4 basis points to 3.76%. Cryptos added +1.63% and Bitcoin advanced by +1.63%. The S&P ESG Index climbed by +1.14%.

NEXT UP

• MBA Mortgage Applications (June 23) were up by +3.0% for the week after gaining just +0.5% in the week prior.
• Central bank titans Powell (US), Lagarde (EU), Ueda (Japan), and Bailey (UK) will all speak on a panel this morning. Talk about a power breakfast