Volatility strikes markets as stocks rebound despite economic concerns and rate cut speculation

• Stocks rallied, PCE and other data points suggest slowing.

• The Rate Cut Narrative is alive and well (again).

• The VIX plunges.

• Bonds rally, Oil comes under pressure and gold treads water.

• Jensen Huang (NVDA) says – ‘Say Hello to Rubin – coming in the fall of 2026’.

• Try the Fresh Made Fettucine with Roasted Cherry Tomatoes.

Stocks rallied at the end of the week after a new bout of volatility during the week caused stocks to struggle but failed to continue to push stocks lower on Friday.  It was the usual drama during the week - mixed economic global news, then speculation about what the FED would do, then the buildup to the Trump verdict and what that might mean for investors and the markets.  We saw the S&P lose nearly 2% through Thursday only to gain most of it back by the 4 pm bell on Friday.

The post market news on Thursday that DJT was found guilty on all 34 counts initially sent shivers in the post trading session – causing US futures to plunge – if only for a minute… – causing many to prepare themselves for another difficult day on Friday – yet that is not what happened at all. In fact – I say all the time – politics can cause short term chaos and usually does, (and I think it did earlier in the week) – but rarely prices stocks in the long term.  In fact – I spoke about this with Stuart Varney on Friday morning on Varney & Co. Click below to see it.

But then we got all of the Friday economic data beginning with the April PCE report – remember we discussed it at length in Friday’s post – and while it did not surprise us to the upside, neither did it surprise us to the downside.  Analysts citing the fact that Friday’s report showed the ‘smallest increase’ in the past 6 months – again, see how that positioned that?  The key word ‘smallest’ is being positioned as a positive.  Now recall that the fear was that the PCE was going to tick UP – sending the message that inflation may be reigniting itself – causing some to bet on a rate HIKE vs. a rate CUT at the next meeting.  

In addition we got the Personal Spending report and that came in weaker at -0.1% vs. the expected +0.1% - and that suggests that the consumer is growing weary, tired of spending so much money and maybe even tired of hearing the Biden’s tell us that it’s all good…. At 9:45 we heard from Chicago and found out that Purchasing Managers in that part of the country are not happy at all.  Remember – in the PMI report – 50 is the dividing line…. anything above 50 indicates expansion and anything below 50 indicates contraction…. The further above or below 50 suggests either a strong expansion or a strong contraction – Capisce?  Well, the May number was expected to be 41.6 (already negative) and it came in at 35.4 – that’s even more negative and the reason this is so important for markets is because the Chicago PMI is often seen as a lead indicator for the broader US economy due to the region’s diverse industrial base.  

And that is all the algo’s needed to ‘hear’ – the weaker Personal Spending, the weaker Chicago PMI and the stable PCE report sent the algo’s into a buying frenzy and BOOM – it was off to the races….the DJT issue ended up being a non-event for the markets but was a boon for his fund raising efforts – his campaign taking in some $50 million between Thursday evening and Friday morning and another $150 million thru Sunday night.  

For investors - It was all about the VALUE trades on Friday – the SPYV gained 1.6% while the SPYG only gained 0.6%. Now Value is still underperforming ytd at +6% while Growth is +15% - but what the action tells us is that investors are finding opportunity away from just ‘tech’.    Energy +2.5%, Real Estate + 2%, Utilities + 1.8%, Financials + 1.5%, Consumer Staples +1.5%, Health Care +1.5%, Basic Materials +1.2%, Industrials +1.2%, - leaving Communications +1%, Consumer Discretionary + 0.6% and Tech +0.2%. 

Down the scale we saw money move into Retail in a big way – the XRT +2.25%, Names like DG +7%, BJ’S +2.25%, TGT +4.2%, & WMT + 1.4%.  Airlines – JETS +2.1%, Coal names like BTU surging by 4.5% Aerospace & Defense – ITA + 1.7% & XAR +1.4%.  Oil & Gas Exploration – XOP + 2.25%,

The VIX – plunged by 10.6% on the ‘good news’…lighting the fire under the multiple rate cut cult suggesting that there is nothing to worry about…with some now suggesting that we could see a June cut, when the FOMC announces their decision in two weeks (June 12th)…now to be clear – markets consensus is for rates to remain UNCHANGED – but there are always those that ‘buck the trend’….and spin the story. 

Now just so that we are on the same page – the headline in this week’s Barron’s just about says all you need to know.

“Don’t expect the Fed to cut interest rates this year” – the article goes onto say that “Chair Powell and his team had hoped to lower rates in 2024, but STICKY INFLATION, a strong economy and calendar quirks are thwarting their plans”. 

Remember the 7-rate cut narrative in January? Do you remember – how I asked- What data points are they looking at that the FED does NOT see?  Did they not hear JJ tell them how he was ‘data dependent’?  No matter, because they laid it out and traders and algo’s took it as gospel – taking the S&P up 12.4% thru mid- May …. It was supposed to be one cut beginning in March and then every month thereafter… Yeah, how’d that work out?  Well, the cuts didn’t’ but the market advance did – which leaves us a bit vulnerable to a pullback if they don’t cut, no?  Or will they succeed in pushing that story out to early 2025? (Which is when I think it happens).

And all this good news sent bonds rallying on the idea of softer economic data…because that means lower rates – we saw the TLT rise by 0.6% and the TLH rise by 0.8% and the AGG gain 0.3%. The 2 yr. yield fell 4 bps to end the day at 4.87%, while the 10 yr. also fell by 4 bps to yield 4.49%.  

Oil got slammed falling 92 cts or 1.2% to end the day at $77.18 – leaving oil down 10.6% off the April high but still up 6% ytd.   Once again, they are trying to tell us that demand in the US and China is weakening…. Here at home - gasoline demand was down 1.4% y/y ahead of the Memorial Day weekend, let’s see what the data looks like this week. They are blaming the warmer winter and the idea that higher for longer is destroying demand.  I see nothing but traffic and cars all over I-95 here in Southern Florida and all kinds of traffic going to the Jersey Shore, the Outer Banks, Cape Cod and the Maine coastline along the East Coast, I can only imagine what’s happening in the heartland and on the west coast – Maybe it’s all those EV’s?…. China is a mixed event as usual…last week it was a weak economy in China and then overnight we got STRONG data – with China’s manufacturing activity expanding at the ‘fastest pace’ in 2 years.

In any event – OPEC+ met on Sunday and as expected they are holding production cuts steady at 2.2 million bpd but have indicated two things.  The first is that the Saudi’s and the Russian’s will maintain those cuts well into 2025 while the second thing is that they plan on bringing back some production at the end of October – for those members that have expressed frustration in controlling supply – think Iran, Iraq, UAE, Nigeria, Libya etc. -  The sense was that they have no desire to push prices lower by adding barrels, but they also need to ‘strike a balance’ with the other members. 

Recall that the Saudi’s would love to see $80 - $100 + oil prices to support their ambitious spending plans.   But NON-OPEC members (Canada, US, Brazil, Norway etc) are keeping supplies healthy causing pressure on prices….and that is causing a migraine for the Kingdom….To be clear – the Saudi’s said that “we will maintain our precautious and preemptive approach, which includes pausing or even reversing the phase-out of cuts.”

As you can imagine, the reaction was mixed by analysts…some citing the bullish impact of the extension cuts while others – led by Goldy – see it as bearish. This morning oil is up 20 cts at $77.19/barrel – leaving us just a chin hair below the trendline at $77.60.

Gold which should have rallied on Friday – on the rate cut idea – did not….and that suggests that there is some near term exhaustion for this asset…remember – Gold has had an incredible move this year….up  more than 16% by mid-May on the lower rate narrative…so, I think that we saw some investors take money out of Gold and plow it into the market – where they expect to see more growth and some divy payments…remember – Gold is not a divy paying asset, it’s not an interest bearing asset, it’s not a growth trade, it’s Gold – it’s a safety trade……which is always good to have, but if investors find more compelling opportunities – they will take money from the safety trade and plow it into the market…..in the end – Gold was up 1.8% in May.  It is now below short term trendline support of $2358 – but it is trying hard to hold on. This morning Gold is trading at $2347/oz.  I think it holds here and teases a bit higher.

At 5 am - Dow futures are down 30 pts (they were up 575 pts on Friday), S&P’s up 10, the Nasdaq is up 72 while the Russell is surging by 20 pts or 1%. GME is surging 100% after ‘Roaring Kitty’ posted a $116 million share position - with an avg cost of about $21/sh overnight on Reddit. This morning the stock is trading at $43.50/sh.  That’s an $8 billion change in value from Friday to this morning.

NVDA is also surging …. but for different reasons – Remember - CEO Jensen Huang told us that they would upgrade their AI accelerators every year – they already introduced the Blackwell Ultra Chip due out in 2025 and overnight – at the Computex Conference in Taiwan - he introduced the next generation Rubin Chip that is due out in 2026. In addition, he introduced new tools and software reiterating his views that the rise of generative AI is the new industrial revolution, and he expects to play the lead role in this movie. NVDA is trading up $30 at $1,127. 

Eco data today includes US Manufacturing PMI’s…. S&P estimate of 50.9 while the ISM has it at 49.6 – both hugging the neutral line of 50.  Then we have ISM Prices Paid and that is expected to be 59.5 – down from 60.9 – which would suggest less upward pressure on prices – think slowing inflation….but the data point that will dominate the week is Friday’s NFP report – where it is expected to show an increase of 190k jobs with unemployment remaining at 3.9%. Average Hourly Earnings m/m up 0.3% and y/y of + 3.9%. 

European stocks are higher…. Germany and the Eurostoxx up 0.9% with the UK carrying up the rear at +0.4%.  Eurozone manufacturing PMI due out later this morning…. Recall that Eurozone inflation rose by 2.6% in May – slightly above the estimate of +2.5%. All the while the ECB is still expected to CUT rates on Thursday, June 6th.  UK Construction Spending and Manufacturing PMI also due out later this morning.

The S&P closed at 5277 – up 42 pts….leaving us just 53 away from the May 23rd high of 5340….And with the ongoing rate cut narrative alive and well and more positive news out of NVDA that is affecting nearly any industry that uses tech -which is ALL of them,  I suspect that we will try to  kiss and test 5340 today – which is just up 53 pts or 1.1% from here – futures are already up 10 pts – so what’s another 40 amongst friends?

Oven roasted cherry tomatoes, garlic, shallots, onions over fresh made fettucine  

I posted the pic of this on Sunday evening. (X: @kennypolcari).  It was simple to make and so delicious.

You need – small cherry tomatoes – left whole, sliced shallot, diced onion, plenty of sliced garlic – used like 6 cloves, s&p and a drizzle of olive oil.  I bought freshly made fettucine at Doris’s Italian Market and a block of Parmegiana cheese to grate over the pasta when served. 

Preheat oven to 350 degrees.

Place the tomatoes, shallot, onion, garlic in a Pyrex roasting dish.  Season with s&p and drizzle with olive oil.  Place in the oven and roast for 30 – 40 mins. 

When ready – bring a pot of salted water to a rolling boil and add the fresh pasta – cook for no more than 3 or 4 mins…. (Taste to be sure…. but too long and it becomes mush).

Add 1 ladle of pasta water to the roasted tomatoes.  Now strain the pasta – Twist the pasta using tongs and place in the center of the bowl. Top with the cherry tomato sauce.  Freshly grate the cheese and serve.  Enjoy your favorite wine. We enjoyed the PlumpJack Cabernet.  Was a perfect evening outdoors under the stars.