Starting with stock market sentiment, the ‘professionals’ remain pretty bullish according to Investors Intelligence as Bulls rose .6 pts w/o/w to 45.2. Bears were 24.7 vs 24.3 in the week prior and the 20.5 pt Bull/Bear spread remains around the widest in a while but nothing extreme. Those surveyed are likely chasing tech and momentum in the big indices. In contrast, today’s individual investor AAII survey saw a jump in those that are Neutral as this category rose 8 pts to 37.4, only a few points from the highest since March 2022. Of the 8 pts, 6.5 came from the Bulls which fell to 22.9 and that is the least since late March (and didn’t include yesterday’s rally). Bears were down 1.5 pts to 39.7. Those surveyed are likely feeling the economic softness. The CNN Fear/Greed index, measuring actually market behavior, closed yesterday at 62, close to the middle of the ‘Greed’ range.
We know the stock market is rallying on the possibility of a debt deal but a debt ceiling raise is not a positive, it would just be a lack of a negative. Also, we have to stretch the analysis and understand that when the ceiling gets raised, and we know it will, the Treasury will have to issue $500b plus of paper quickly to refill its General Account which according to their website was sitting at just $95b as of Tuesday. That will suck liquidity out of many other places in order to fund. //fiscaldata.treasury.gov/datasets/daily-treasury-statement/operating-cash-balance.
US Treasuries are selling off again with the 2 yr yield approaching 4.20% and the 10 yr back to 3.60%. Bond yields rose in Asia and are higher in Europe too across the board.
Here is what Cisco said of note in their earnings call and resulting in the drop in the stock pre market:
“As it relates to customer demand, it is being shaped by a few factors that we believe are impacting the entire industry. First, our increase in product shipments is often leading customers and partners to absorb these shipments prior to placing new orders. Second, the significant reduction in product lead times reduces the need for extensive advanced ordering by our customers. And third, macroeconomic conditions.”
From Target’s call yesterday:
“As it did throughout last year, pressure from inflation and rising interest rates affected the mix of retail spending in Q1 with a further softening in discretionary categories in the March and April timeframe. This coincided with a deterioration in consumer confidence, reflecting recent events such as the banking crisis that emerged in March. These continued signs of caution among consumers have reinforced why we entered this year with a conservative inventory position.”
In terms of product mix, “we continue to benefit from traffic and sales growth in our frequency categories, food and beverage, household essentials, and beauty, which help to offset y/o/y sales in our more discretionary home, apparel, and hardline categories. Within the quarter, total sales were strongest in February, began decelerating in March, and soften further near the end of April.” I bolded that comment.
Target didn’t specifically say it but lower tax refunds is one reason why things weakened as the quarter progressed I’m guessing. In yesterday’s Manheim used car press release where prices fell 2.1% in the first two weeks of May vs April seasonally adjusted, they talked about this refund issue (which is not new news by the way). They said “Tax refunds in 2023 are down compared to last year in all key metrics…The number of refunds issued is down 1% from last year, 8% less has been disbursed than last year, and the average refund at $2,803 is down 7% y/o/y.”
We await the Walmart conference call.
Overseas, Australia’s job data for April was weaker than expected with a drop in employment and a rise in their unemployment rate. Japan reported that exports rose 2.6% y/o/y in April, just under the estimate of 3%. Imports fell mostly due to a slip in commodity imports (more price than volume).
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