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It has been a wild week on Wall Street. Nvidia reported strong first quarter earnings, resulting in another record high, closing at $1037, up 9.32% for the day. The surge was not enough to keep the tech sector from falling into the red as markets once again begin to embrace economic fundamentals and data as the overwhelming drivers of risk. The market mood turned more somber after stronger-than-expected US business activity data forced traders to push back rate-cut expectations by a month. We think the delay in rate-cuts could be more than month. The Dow dropped 605 points on Thursday, the worst one day drop since March of 2023.
The S&P 500 traded below psychological support of 5,300 after US business activity accelerated in early May at the fastest pace in two years, reflecting stronger growth at service providers and accompanied by a pickup in inflation. The preliminary data from S&P Global Purchasing Managers Index seen as likely adding to a Federal Reserve that must keep interest rates higher for longer. Treasury yields climbed, with the move led by shorter maturities; the two-year yield rising more than 6 bps. Swaps now fully price in a full quarter-point rate cut in December, versus November a day earlier. The dollar rose while crude and metals futures fell. Bitcoin sank around 4%.
With the uncertainty of today’s market environment, we continue to hold higher than normal amounts of cash with our eye on buying opportunities. We do not foresee the Federal Reserve lowering interest rates before September, and frankly, it is plausible that rates do not move before first quarter 2025. Though the old antidote “Sell in May and Stay Away” has not proved prudent over the last decade or so, we continue to remain cautious. Warren Buffet recently mentioned that his top pick right now is cash. While interest rates stay up, and the money market yields are hovering around 5%. This makes cash an attractive holding as we seek undervalued opportunities.
*Bloomberg
