Stocks pare gains after ISM, meme stock mania returns, cryptos struggle

Many Americans got their first taste of normalcy this weekend, so it is no surprise that airlines, cruise ships, and hotels, pretty much all the favorite reopening trades got off to a strong start. The reflation trade seemed to be back as commodities surge across the board, supporting the move higher with Treasury yields.  It initially looked like optimism will be the theme leading up to Friday’s jobs report.  A strong nonfarm payroll report that includes an upwardly revised prior reading could be what is needed to send Treasury yields higher again.

Both US stocks and Treasury yields pared gains after the ISM employment component showed weakness in hiring.  No one is abandoning the US growth exceptionalism trade, but optimism for a swift labor market recovery is fading and might complicate Wall Street’s assessment of the US consumer.

Manufacturing Data

US manufacturing remains very strong in the US, while pricing pressures show no sign of easing up at all.  Three big manufacturing reports (ISM, Chicago and Dallas) all confirm price pressures are getting stronger and labor shortages are not improving.

The ISM Manufacturing index posted its 12th consecutive month of growth as optimism remains strong despite recent pricing pressures.   The employment index dipped from 55.1 to 50.9, which will likely raise some red flags for traders who were expecting a blockbuster nonfarm payroll report.  Following last month’s disappointing 266,000 jobs release, investors might be a little more downbeat going into Friday.

The Chicago Purchasing Managers’ Index (PMI) jumped to 75.2 in May, which seems to be largely impacted by a big bump up with Boeing orders.  The MNI release highlighted that demand remained strong in May with new orders jumping to the highest level since December 1983.

Activity in Texas slowed down, but still represented solid growth.  The new orders component came in at 20.8, down from 38.5 in April but more than triple the series average of 6.3.  The Dallas Fed survey showed the finished goods prices index remained near its all-time high reached last month, coming in at 38.4. The wages and benefits index pushed to a new high of 39.0.

Meme Stocks
AMC and GameStop retail support can’t stop and won’t stop.  AMC is trading as if this summer was going to have new Star Wars, Avengers, and Batman movies.  Investors reacted positively after AMC entered an agreement with Mudrick Capital and raised USD230 million of new equity that will go into acquisitions and investments.  AMC is taking advantage of their high stock price and is helping ease their cash problem.  The retail force behind this movement is still strong, so it is anyone’s guess how much larger this bubble can grow. Mudrick Capital has lended to AMC in the past and this appears to be more of a move to support AMC’s bonds.  Reports circulated that Mudrick Capital was able to sell its entire AMC stake at a profit, with retail traders being unfazed by the news.

GameStop also had a nice pop in early trade after Keith “Roaring Kitty” Gill, GameStop #1 influencer tweeted for the first time since mid-April.  His tweet contained a screenshot of a video from the ‘Six Stinky Cats’ Gang.  In typical Reddit Army trading fashion, the simple reminder of Roaring Kitty’s presence excited retail traders.

Cryptocurrencies

Long-term bullish crypto bulls are welcoming a calm start to the month following a disastrous May.  After losing over one-third of its value in May, Bitcoin is struggling to attract new investors.  The bull case might still be there for bitcoin, but even the retail trader is eyeing a deeper plunge.  If Bitcoin can consolidate between USD30,000 and USD40,000 this month, long-term investors will slowly add onto their positions.

Some typical flows that would normally come into cryptos appear to be finding its way back into meme stocks.  The global crypto market is not growing as much as it used to during risk-on trading sessions and if that theme continues, a retest of the May low could be in the cards.

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