On the lookout for follow through

NVIDIA (NVDA) traded to a new all-time high yesterday on a material 5.2% gain in front of its 10-for-1 stock split. That move sent its market capitalization above $3.0 trillion, leapfrogging Apple (AAPL) in the process as the second largest stock by market capitalization, and catapulted the S&P 500 and Nasdaq Composite to new record highs of their own.

The equity futures market shows a more subdued tone this morning, but that's not NVIDIA's fault. Shares of NVDA are up another 1.5% and continue to act as a key support for the broader market.

Currently, the S&P 500 futures are flat and are trading in-line with fair value, the Nasdaq 100 futures are up 21 points and are trading 0.1% above fair value, and the Dow Jones Industrial Average futures are down 11 points and are trading fractionally below fair value.

The early lack of conviction has something to do with waiting to see if there will be follow through on yesterday's breakout to new highs. We suspect, too, that there are concerns about the market — and a number of mega-cap stocks — being due for a pullback.

NVIDIA for its part is up 62% from its low on April 19, Apple (AAPL) is up 19%, Alphabet (GOOG) is up 15%, and Eli Lilly (LLY) is up 15%, versus an 8.1% gain for the S&P 500. Microsoft (MSFT), up 6.6%, Amazon.com (AMZN), up 4.5%, and Meta Platforms (META), up 4.1%, have trailed the move.

Another stock that has trailed the move  — but isn't trailing this morning — is lululemon athletica (LULU). It is up 9% after reporting what some will describe as better-than-feared results. Going into its report after yesterday's close, LULU was down 40% for the year.

Corporate news, though, is largely taking a backseat to macro developments, which has featured the ECB cutting its three key interest rates by 25 basis points — the first cut since September 2019 — and a batch of economic data.

• Initial jobless claims for the week ending June 1 increased by 8,000 to 229,000 (Briefing.com consensus 216,000). Continuing jobless claims for the week ending May 25 increased by 2,000 to 1.792 million.
  • The key takeaway from the report is the uptick in initial jobless claims, which will be seen as a sign of some loosening in the labor market.
• Q1 Productivity was revised down to 0.2% (Briefing.com consensus 0.3%) from 0.3%. Q1 Unit Labor Costs were revised down to 4.0% (Briefing.com consensus 4.7%) from 4.7%.
  • The key takeaway from the report is the downward revision to unit labor costs. Although a backward-looking report (we're two-thirds done with Q2), that revision will take out some of the labor cost inflation sting seen in the advance report.
• The April trade deficit widened to $74.6 billion (Briefing.com consensus -$76.5 billion) from an upwardly revised $68.6 billion (from -$69.4 billion). Exports were $2.1 billion more than March exports, but imports were $8.0 billion more than March imports.
  • The key takeaway from the report is that there was an uptick in both exports and imports in April, which is a reflection of increased global trade activity; however, with imports exceeding exports, that will create a drag on Q2 GDP.

The 2-yr note yield is up one basis point to 4.74% (down 12 basis points for the week) and the 10-yr note yield is up two basis points to 4.31% (down 18 basis points for the week).

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Originally Posted June 6, 2024 – On the lookout for follow through