DJIA: 44,651
Tariffs… who saw those coming, again. Judging by the Market’s reaction Monday, few. Most had expected something more conciliatory. And what about the idea that it’s the market that makes the news, and in good markets like this one bad news is ignored. Perhaps in its way the market did make the news. It is a good market, but good to the point of having become a bit stretched to the upside. Couple that with tariff news that surprised – we give you Monday. Good markets do make the news – new highs in the A/Ds, the best 12-month new highs since last October, and a spike in stocks above the 200-day say it’s good. Add to that a Golden Cross in the S&P itself, the 50-day above the 200-day average. While not always helpful for individual stocks, it has led to higher prices in the S&P 9 to 12 months later.
Monday may have proven a one-of. The 90-day pause on tariffs ended Tuesday with the announcement of tariffs of 50% on Copper and 200% on Pharmaceuticals. Markets yawned, even at the assertion there would be no further extension after the August 1 deadline. Tariffs will be worse than expected at the start of the year, but markets seem skeptical there won’t be the usual backtracking. The equity-only-put-call ratio is back to levels seen around the February peak, meaning there is even some risk in terms of complacency. Meanwhile, the latest news did affect the sectors at risk, perhaps most noticeably Copper. An important commodity in many industries, Copper is now at an all-time high. A not so rare earth acting like one.
The big bad bill as some have called it, is it a shot in the arm or a shot in the foot? No bill would have meant the largest tax hike in history, and the stimulus part seems obvious. Certainly for now the market sees it as the former, and that’s what counts. Like Musk, however, one has to wonder how the deficits entailed will not prove inflationary. Time will tell, and at least for now that’s the key – there’s time. Meanwhile, part of the bill also involves considerable funding for ICE. Rounding up illegals also means rounding up a not so insignificant part of the labor force. It used to be said that inflation was always about wage inflation. Again, time will tell. Meanwhile, after having been much less of a worry, Bonds again are looking a little less benign.
Nvidia (NVDA – 164) hits the big $4T, very impressive. More impressive in a way Nvidia is now 7.5% of the S&P. Throw in the rest of the MAG 7, you’re probably up to 40%. Wonder why they say the market is concentrated? To that we say deal with it, to a degree it is always that way – it’s called having leadership. There actually was a time when the concentration wasn’t in Tech but in Energy, if you can believe it. Energy now has a weighting of less than half that of Nvidia alone. Still there’s little question that the position of Nvidia and the rest of Tech has had an impact. There was a time when to participate in the stock market, you simply bought the S&P. Doing so now means you are buying a diversified group of Tech stocks, and some others. Then, too, for now it is Tech’s world.
The above notwithstanding, a not so techy Walmart (WMT – 95) looks just fine. And then there are the myriad of Financials from J.P. Morgan (JPM- 288) to the Regional Banks. Indeed, that’s the technically endearing quality of this market – most stocks act well, or at least well enough. When most days most stocks go up, good things happen. Just beware of the bad up days – up in the averages with poor or negative A/Ds. Getting back to the news, the hits just keep coming. Good markets ignore bad news and all that, but the degree to which they do so is an indicator itself. It’s not always easy to recognize or appreciate, but when markets don’t react to negative news, there’s a message.
Frank D. Gretz
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