All Roads Lead to Inflation?

Pia Singh and Alex Harring of CNBC report the Nasdaq rises to hit new all-time high Friday as rest of market languishes:

The Nasdaq Composite climbed to an all-time high on Friday, boosted by megacap tech stocks.

The tech-heavy index rose 0.56% to 18,518.61, while the S&P 500 inched 0.03% lower to end at 5,808.12. The Dow Jones Industrial Average shed 259.96 points, or 0.61%, to close at 42,114.40.

Tech stocks boosted the market ahead of their upcoming earnings. Nvidia added 0.8%, and shares of Meta Platforms, Amazon and Microsoft were also higher. On the quarterly results front, HCA Healthcare lost nearly 9% after reporting hurricane disruptions hit its earnings and full-year guidance, while Colgate-Palmolive shares shed 4% after the company reduced the low end of its sales estimate for the year.

The 10-year Treasury yield notably cooled off from its three-month highs after breaking above the 4.25% mark during Wednesday’s session. On Friday, it rose more than three basis points to roughly 4.24%.

“Yields have risen meaningfully, and so I think that’s been an issue for the equity market,” said Phillip Colmar, managing partner and global strategist at MRB Partners. “On one hand, you got earnings that are decent, but then you end up with rate cuts, which should be positive.” However, the rates that matter right now are bond yields, he said. “That has caused a lot of uncertainty and you’re getting some just kind of digestion.”

These moves follow a mixed day on Wall Street. The Nasdaq joined the S&P 500 in finishing the session higher on Thursday, after both indexes were lifted by Tesla’s post earnings rally.

Both the S&P 500 and Dow snapped a six-week winning streak. The former was off nearly 1% on the week, while the latter ended the period lower by 2.7%. The Nasdaq notched its seventh weekly gain, advancing nearly 0.2%.

Rita Nazareth of Bloomberg also reports the S&P 500 sees first gain this week as Tesla Up 22%:

Stocks rose for the first time this week, with traders parsing a slew of corporate earnings for clues on the health of the world’s largest economy. Treasuries rebounded after days of losses.

A gauge of the “Magnificent Seven” hit a three-month high, with Tesla Inc. up 22% in its biggest rally since May 2013. Elon Musk’s electric-vehicle giant reported strong earnings and forecast as much as 30% growth in car sales next year. United Parcel Service Inc. — an economic barometer — jumped 5.3% after returning to sales and profit growth. International Business Machines Corp. and Honeywell International Inc.’s results failed to inspire.

“Despite the possibility of more volatility as we get deeper into earnings season and close in on the November election, the market’s longer-term outlook remains solid,” said Daniel Skelly at Morgan Stanley’s Wealth Management Market Research & Strategy team.

The market barely budged after Thursday’s economic data, with new home sales beating estimates, initial jobless claims dropping and business activity expanding at a solid pace.

“Goldilocks data that’s in-line with expectations (so not too good or too bad) is the best outcome for a continued rebound in stocks and bonds,” said Tom Essaye at The Sevens Report.

The S&P 500 rose 0.2%, reclaiming its 5,800 mark. The Nasdaq 100 climbed 0.8%. The Dow Jones Industrial Average dropped 0.3%, posting a fourth consecutive day of losses — the longest losing streak since June. In late hours, Tapestry Inc. — the maker of Kate Spade handbags — rallied as a judge blocked the planned acquisition of rival Capri Holdings Ltd.

US 10-year yields fell four basis points to 4.20%. A $24 billion five-year TIPS auction drew the lowest yield this year as inflation-protected Treasuries have outperformed since the Federal Reserve cut rates last month.

Oil dropped as oversupply concerns overshadowed the risks from Israel’s potential retaliatory strike on Iran.

“The market appears to be driven by the projected outcome of the earnings reporting period, the presidential election, and the bond market’s interpretation of future monetary actions by the Federal Reserve,” said Sam Stovall at CFRA. “Investors see the resiliency of the economy and employment forcing the Fed to be ‘slower to lower’ on rates.”

This week was all about rates backing up and Tesla smashing expectations with a stellar report.

So let me give you my two cents here because in both cases, it's much ado about nothing.

First, long bond yields always back up after the Fed starts to cut rates.

If you look at the 10-year Treasury yield, it has backed up pretty significantly since September 9th when it hit a low of 3.65%: 

Are we headed back up to the 5% yield hit last October? 

No, we are not, the Fed is in easing mode, inflation expectations have dropped significantly, this latest backup in yields is textbook after the Fed cuts rates by 50 basis points for the first time in four years.

I drew that line around 4.3% because I have a hard time seeing the 10-year rate backing up much higher, maybe 4.5% but that's it and then I expect the rally in long bonds to resume.

I know, the presidential election is right around the corner, Trump has an edge over Harris and if he wins, he's threatening to impose tariffs and cut taxes.

I say we all take a deep breath and remember Trump 1.0 also said a lot of things that never materialized. 

Now, my two cents on Tesla shares which surged higher following stellar earnings, steamrolling short sellers and erasing a year's gain in one day:

Whenever a mega cap tech stock pops 22% or more in a couple of days, expect the stock to cool off in subsequent weeks.

Will it continue higher making a new 52-week high? Possibly, it might go to $300 but I have my doubts there too as I think it's as good as it gets for Tesla and once the recession becomes clearer it and other Mag-7 stocks will not be spared.

I say $300 because it roughly corresponds to the July 2022 high before it started tanking:

Anyway, predicting stocks and recessions isn't easy but I tend to not get carried away when I see big moves either way.

All I know is at the end of the day, Tesla is a car company and it's still way overvalued.

So what? So are many other Mag-7 and non-Mag-7 tech shares and the Nasdaq keeps melting up:

A chart like that is music to Ed Yardeni and Tom Lee's ears but we shall see if it continues next week after a slew of other mega cap tech stocks report.

It might continue, who knows, but the rally is getting long in the tooth.

Of course, this week, legendary investor Paul Tudor Jones appeared on CNBC saying "all roads lead to inflation" and he's long "gold, commodities, bitcoin and the Nasdaq".

He thinks the debt and deficit is unsustainable and the only way out of this mess is inflating it away.

He also said he owns no long bonds but he doesn't understand asset-liability management and why pension funds would jump on Treasuries again if the 10-year yield hit 5% (hell, I bet you they are buying them now).

Alright, before I leave you, my biotech stock of the week:

And the biotech stock of the day: 

The amount of insane pumping and dumping going on in the stock market every week is staggering, just staggering, a lot of market makers (one on particular) are making a killing.

Alright, that's a wrap, have a nice weekend.

Below, Paul Tudor Jones, Tudor Investment founder and CIO and Robin Hood Foundation founder, joins ‘Squawk Box’ to discuss the 2024 presidential election, state of the economy, how to fix the federal deficit, the Robin Hood investors conference, and more.

Next, Kevin Warsh, Hoover Institution distinguished visiting fellow and former Federal Reserve Governor, joins 'Squawk Box' to discuss the Fed's inflation fight, state of the economy, rate path outlook, and more.

Third, Dubravko Lakos, Head of Global Markets Strategy at JPMorgan, joins CNBC's Halftime Report to discuss his outlook for equities.

Fourth, David Zervos, Jefferies chief market strategist, joins CNBC's 'Squawk on the Street' to discuss market outlooks, the potential impact of the election, and more (listen to his views on debt and deficits).

Fifth, Jeremy Siegel, Wharton School finance professor, joins 'Closing Bell' to discuss markets, the Fed's next moves and the economic outlook.

Lastly, Ed Yardeni, Yardeni Research president, joins 'Squawk Box' to discuss the latest market trends, why he believes the market may be in the early stages of a melt-up, state of the economy, impact of the 2024 election, and more.