Trade The Journey

Trade The Journey

Is the Bull Run Over?

Good Afternoon Traders, I hope everyone is enjoying their weekend and preparing for the week ahead. This past week the indices mostly closed lower as the economy powers ahead in the midst of tighter monetary policy. While there hasn’t been a rate hike in several months, the also hasn’t been a cut in rates forecasted by the markets earlier this year. Initially, the first cut was forecasted by March, but the probabilities changed as inflation edged higher and the job market remained strong.

The probabilities then tilted towards the first cut in June but that changed once the CPI showed inflation edged higher for the third consecutive month. Fed speakers also became unwilling to commit to more than one cut if any if the data continued to show otherwise. After the retail store report showed that consumers are still spending even if taking on debt, the markets fell.

Rates are currently projected to stay at their current level until the September Fed meeting, where the probabilities are nearly even. There’s a 45.1% probability of rates being cut by twenty-five basis points and a 35.6% probability of rates remaining at their current levels. To give a sense of how far the probabilities have shifted, a month ago there was 65.4% probability of a twenty-five-basis point cut in June.

What really seems to have the market in a heightened since of uncertainty, besides the rising geopolitical tensions, is the notion that the Fed could possibly raise rates which until recently weren’t factored into the economic outlook. With new developments in the Israel/Iran conflict and uncertainty about the economy, volatility spiked to a new recent high.

The VIX, which is a measure of uncertainty calcuated using the ratio of puts brought to calls which indicates bearish or risk-off sentiment, reached 21.35. The VIX ended the week at 18.71 and has been in a solid uptrend since breaking through the 15.61 reference level at the beginning of this month. Gold is hovering near its high of $2,448 but looks like it could be forming a top. Gold also began its upward trend at the beginning of this month.

What’s interesting is that the dollar is also moving higher but for different reasons. As monetary policy is expected to remain higher for longer and central banks around the world are in the midst of possibly cutting rates, the dollar is attractive for its return. It’s also brought in times of tension. The dollar used the 50 sma as support several weeks ago and is now at $106.118.  The dollar’s most recent high is $107.348.

Crude Oil broke through the $84.10 reference level, which has proven to be a solid level of support, and ended the week at $82.11, nearly breaking through its 50 sma.  Crude never made the jump anticipated as Israel launched a contained counterattack against Iran. The attack was more symbolic than an escalation.

Developments around the world…

China left its 1-year short-term rate unchanged at 2.5% as its struggles to reinvigorate the economy. The house price index fell 2.2% in March, over the past year, far lower than the 0.2% forecasted. Its housing prices are near revisiting the lows in prices made in 2015. In 2015, China had an oversupply of homes from the construction boom, years prior. Real Estate investment is one of the primary vehicles in which Chinese citizens invest besides savings accounts.

Fixed asset investment rose 4.5% over the past year, surpassing forecasts of 4.3%. The rise is primarily attributed to investment in the primary sector which deals with natural resources. The secondary sector concerns processing, transformation, and the conversion of raw materials into finished products or construction. The tertiary sector is focused on services.

Its GDP growth over the past quarter edged higher than the forecasted 4.3% to 4.5%. Its unemployment rate declined to 5.2% from 5.3% over the past month. Its unemployment rate among its youth was reported but is rumored to be a little above 20%. Its industrial capacity utilization moved noticeably lower. Foreign direct investment fell over 25% and is at its lowest in the last ten years as foreign capital is moving to countries like India.

In the Euro Area, the ECB has telegraphed the first rate cut to be in Summer, most likely June. Industrial production moved into positive territory and increased a bit although it remains in negative territory. Its inflation rate edged lower over the past year as has its core inflation rate. The CPI final rate over the past year is at its highest level of all time. Its harmonized index of consumer price index, which excludes housing and has a changing base year, edged higher to 0.8%.

Earnings Season Continues

JB Hunt: Missed on Earnings and Revenue

JB Hunt reported a 9% decline in revenue, a 30% drop in operating income, and a 35% decrease in earnings per share compared to the previous year, reflecting a challenging market environment. CEO John Roberts emphasized the company’s long-term strategic focus and announced his upcoming retirement, with President Shelley Simpson set to succeed him. Across various business segments, noting flat demand in Intermodal but potential growth from strategic partnerships like the Walmart container fleet acquisition.

 Dedicated Contract Services showed strong sales despite some customer bankruptcies, while Integrated Capacity Solutions faced intense competition. The Truckload segment saw revenue and volume declines, although there are positive signs for future growth through the J.B. Hunt 360box initiative. Final Mile services are improving in profitability and service quality. The company is actively managing costs to balance future growth needs and remains optimistic about its strategic positioning and long-term growth potential despite current market downturns.

Netflix: Beat on Earnings and Revenue

In the Netflix Q1 2024 Earnings Interview, significant strategic shifts were outlined, underscoring the company’s adaptive measures to evolving market dynamics and competition. Notably, Netflix announced plans to cease the reporting of quarterly membership and ARM data by 2025, pivoting to focus on broader financial metrics such as revenue, operating income, net income, EPS, and free cash flow. This shift aims to better reflect the diversity of Netflix’s revenue streams arising from new business models like advertising and varied pricing structures across different regions.

Content strategy remains at the forefront, with a commitment to enhancing the quality and variety of offerings to boost viewer engagement—identified as a key metric influencing retention and acquisition. The advertising tier reported significant growth, with ongoing efforts to expand its user base and enhance ad monetization capabilities. Moreover, Netflix is delving into live sports and event programming, such as the high-profile Jake Paul vs. Mike Tyson fight and partnerships with WWE. This move is intended to attract new subscribers and enhance viewer experiences through live content that encourages simultaneous viewership, potentially boosting advertising revenue.

In addition, Netflix is proactive in integrating technological innovations like generative AI to improve content recommendation systems and develop new tools that assist storytellers in creating compelling content. These strategies reflect Netflix’s continuous endeavor to diversify its revenue streams and sustain its competitive edge in the streaming industry.

Goldman Sach’s:  Beat on earnings and revenue

Goldman Sach’s had a record-breaking performance with significant net revenues and earnings per share, attributed to robust client activity across M&A, equity underwriting, asset management, and wealth management sectors. David Solomon reviewed the strong financial outcomes, noting the highest return on equity in over a decade, driven by strategic executions and a favorable economic environment. He expressed optimism about the US economy’s recovery, fueled by consumer spending, though he remained cautious about ongoing COVID-19 risks and potential inflationary pressures.

The conversation also addressed the Archegos Capital situation, with Solomon affirming the effectiveness of Goldman Sachs’ risk management systems during the incident. Additionally, he touched on the firm’s approach to cryptocurrencies and blockchain, emphasizing a cautious and regulatory-compliant engagement. Stephen Scherr detailed the financial results, noting record revenues in investment banking and significant gains in global markets—the best since 2010. He discussed the strategic shift in asset management towards third-party assets and underscored the firm’s efforts to maintain a resilient and liquid balance sheet.

Overall, the call reflected Goldman Sachs’ robust financial performance and strategic advancements, set against a backdrop of a promising yet cautious macroeconomic outlook. The executives communicated a disciplined approach to strategic execution and risk management, looking ahead with cautious optimism.

Bank of America: Beat on Earnings and Revenue

Bank of America reported a solid Q1 performance with $6.7 billion in net income, attributing part of the strength to robust fee-based business improvements and investment banking growth. Notably, net interest income (NII) performed better than expected, reaching $14.2 billion, driven by deposit growth and pricing discipline. Moynihan also highlighted operational efficiencies and digital investments, which have supported customer retention and service enhancements.

Chief Financial Officer Alastair Borthwick detailed the financials, emphasizing strategic balance sheet management and the stability of deposit rates. He predicted moderate deposit and loan growth moving forward, maintaining a cautiously optimistic outlook for NII in the latter half of the year.

The health of the consumer was emphasized as robust and growing. Brian Moynihan noted the addition of 245,000 net new checking accounts, marking 21 consecutive quarters of net additions, which underscores strong consumer engagement and trust. This increase is not only reflected in more accounts but also deeper financial relationships as these accounts grow in value over time. Enhanced customer experiences through digital banking tools further bolster consumer retention and engagement.

Additionally, the wealth management sector saw significant growth, adding 7,300 new wealth relationships and experiencing strong asset management inflows. This suggests a healthy financial status among higher asset consumers, who are actively investing and utilizing financial services. Overall, these trends indicate a strong consumer base, confidence in their financial dealings and the bank’s ability to serve their needs.

Upcoming Week


Economic: New Homes Sales, Richmond Fed Manufacturing

Earnings: Lockheed Martin, Tesla


Economic: Durable Goods

Earnings: Meta, Boeing, Ford


Economics: Wholesale Inventories, Initial Claims, GDP advanced estimate

Earnings: Microsoft, Google, Capital One, Intel


Economic: PCE, University of Michigan Consumer Sentiment – Final

Economic Data Insights:

Retail sales surprised to the upside, rising 0.7% in March and 4% over the past year. February’s retail sales were revised up from 0.6% to 0.9%. Excluding motor vehicle & parts, retail sales rose 1.1%. While most industries remained near last month’s levels, some industries saw a noticeable increase in sales.

Gasoline stations, miscellaneous store retailers and nonstore retailers rose above 2% this past month. Noticeable declines were seen in clothing & clothing accessories stores, electronics & appliance stores, motor vehicles & parts dealers, and sporting goods, hobby, musical instruments & bookstores. Food services& drinking places sales were near last month’s levels.

Business Inventories rose 0.4% in February as trade sales rose 1.6%. The inventories-to-sales ratio rose to 1.38. Sales bounced back among manufacturers, retailers, and merchant wholesalers while inventory levels remained about the same. There was virtually no change in inventory levels across the industries, however general merchandise stores saw some growth in inventory.

Industrial Production in March saw a modest increase of 0.4%, but overall it declined 1.8% annually in the first quarter. While manufacturing output rose by 0.5% due to a significant 3.1% increase in motor vehicles and parts, the output excluding motor vehicles edged up by just 0.3%. Mining experienced a downturn, decreasing by 1.4%, but utility production improved with a 2% rise. The overall capacity utilization rose to 78.4%, which remains 1.2 percentage points below the historical average from 1972 to 2023.

The detailed data for March reveals that total industrial production remained stagnant year-over-year, positioned at 102.7% of its 2017 average. In major market groups, there was notable progress in the production of consumer goods and business equipment, which contrasts with declines in nonindustrial supplies and construction. The diverse results across different industrial sectors highlight underlying volatility, with significant gains in certain areas like motor vehicles and parts counterbalanced by losses in mining and mixed results in manufacturing sub-sectors.

The Philly Manufacturing Business Outlook in April showed continued growth in April. The general activity, new orders, and shipments indicators all saw increases. However, the employment scenario remained challenging, with the employment index staying negative for the 12th time in the past 14 months. Price indexes indicated sustained increases in input prices, with a significant rise in the prices paid index, reflecting the highest level since December 2023.

Looking ahead, the firms maintained a positive outlook despite a decline in the future activity indicators. Expectations for the next six months remain optimistic, with significant proportions of firms anticipating increases in general activity, new orders, and shipments. The future employment index also showed an improvement, suggesting expectations for job growth. Meanwhile, firms anticipate continued cost pressures, with expected increases in wages and overall compensation remaining consistent with earlier forecasts.

Initial claims came in at 212,000 this past week and slightly below estimates of 215,000. The four-week moving average was unchanged from last week’s level of 215,000. Continuing claims edged up to 1.812 million, near the same level as the previous week.

Moving to housing

In March, the annual rate for building permits was 1,458,000, marking a 4.3% decrease from February, yet showing a 1.5% year-over-year increase from March 2023. This suggests a recent downward trend in building permit authorizations, although they remain slightly higher than the previous year. Single-family permits saw a sharper decline of 5.7% from the previous month to 973,000, indicating a cooling in this segment. Permits for units in buildings with five or more units remained stable at 433,000, reflecting steadiness in multi-family housing projects despite overall volatility in the housing sector.

Housing starts also followed a downward trajectory in March, 14.7% lower than February’s revised estimate and 4.3% below the rate from March 2023. This decline was led by a 12.4% decrease in single-family housing starts to 1,022,000, underscoring a slowdown in new residential construction. In contrast, housing completions in March reached a seasonally adjusted annual rate of 1,469,000, which is 13.5% below February’s figure and 3.9% less than the previous year, with single-family completions at 947,000, down by 10.5%. This continued drop in completions may further tighten the existing home supply, impacting the broader housing market.

Mortgage applications rose 3.3% from the week prior. The refinance index and the purchase index both rose this past week, 0.5% and 5%, respectively. The average rate for a 30-year fixed conforming loan rose twelve basis points to 7.13%. The average rate for a 30-year fixed jumbo loan rose twenty-seven basis points to 7.4%. Delinquency rates for mortgages backed by commercial properties were unchanged but rose for office properties in the first quarter. 20% of the $4.7 trillion in outstanding commercial mortgage debt will be maturing this year.

Technical Story:

This past week’s cash flow in Review:

This past week went well in terms of managing my cash flow although I did have a hefty expenditure on my pet’s health. Besides the expense, my spending was about the same and I was able to pay towards lowering my credit balance.

Grade: C+

Reason: Some improvements

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