U.S. stocks were higher on Tuesday morning following a number of positive earnings reports. On the housing front, new home sales for March rose to a seasonally adjusted rate of 693,000, above expectations for 669,000. Spotify Technology (SPOT) is up 14% after reporting above-consensus results and gross margin improvement. The Dow was up 0.5%, the S&P 500 rose 0.96% and the Nasdaq gained 1.4%. Crude oil is trading above $82 per barrel and gold fell $11 to $2334 per ounce.

The United States economy is full of innovation. It has to be. Manufacturing industries that dominated the economy decades ago - textiles, televisions, even automobiles to a large degree - have moved overseas, where labor and materials costs are lower. Yet the U.S. economy, even during the pandemic and the current period of high inflation, has expanded to record levels. If U.S. corporations weren't innovating, creating new products (such as vaccines and AI) and services (such as Zoom calls) and moving into new markets, the domestic economy would not be growing, and capital would not be flooding into the country. The current high level of the U.S. dollar relative to currencies around the world attests to the confidence that global investors have in the durable and innovative U.S. economy.

After a calm first quarter, when the VIX Volatility Index averaged a low 13.5, the closely watched "fear index" has jumped five points in April and the S&P 500 has slipped 5%. Are we headed for a market correction or even a visit from the bear? After a remarkable 27% run from late October 2023 through March, stocks appear to be reacting to some of the risks we have highlighted for 2024, such as geopolitical developments (Mideast, Russia, China), high interest rates (the Fed hasn't cut yet), the chance of recession (the yield curve is still inverted), stubborn inflation, and the upcoming 2024 U.S. presidential election. On the positive side, we continue to anticipate that the U.S. economy will avoid a recession into 2025, the Federal Reserve will start to lower interest rates later this year, and earnings growth is poised to accelerate over the next few quarters. All that said, the current VIX reading is around 18.5, which is below the 15-year average of 20.5 and signals that investors aren't overly worried (yet) about the outlook. This reading compares to the average VIX of 24 during the most-recent bear market and 35 during the financial crisis of 2008-2009. During the long bull market in the 2010s, the VIX averaged 18 and even touched lows below 10 in 2017. We continue to think that the S&P 500 is in the early innings of a new bull market that dates to October 2022. And while the path for equities won't be straight up, we suggest investors over-weight their portfolios toward stocks at the current market and economic juncture.

While the stock market made a decent recovery on Monday after getting trounced since April 11, we certainly do not have enough evidence that the pullback is over. There has been some minor technical damage from an intermediate-term perspective, with the major indices undercutting their 50-day moving averages and the 21-day exponential average crossing below the 50-day simple late last week. This is the first moving-average crossover since August 2023. So after any oversold rally runs its course, we think there is an even chance that the indices have another leg lower that will undercut Friday's low.

We've reported for weeks that the trading activity among corporate insiders in general, but on the tech-heavy Nasdaq in particular, was clearly suggesting that stocks likely had come too far, too fast. Further, insider-sentiment data from Vickers Stock Research left the clear impression that stocks were priced for perfection and vulnerable to events like inflation disappointment, geopolitical turmoil, or less-than-expected corporate earnings. Now, a mix of all those things seem to be in play and stocks are indeed experiencing rough sledding for the first time since about October. Reflecting the forecasting from Vickers, as of this writing the Nasdaq Composite and Nasdaq 100 have slid about 7% from the March 22 highs while the S&P 500 is off about 5%.

The Vickers Top Insider Picks is a daily report that utilizes a proprietary algorithm to identify 25 companies with compelling insider purchase histories based on transactions over the past three months.

The Vickers Top Buyers & Sellers is a daily report that identifies the five companies the largest insider purchase transactions based on the dollar value of the transactions as well as the five companies the largest insider sales transactions based on the dollar value of the transactions.

U.S. stocks rose on Monday morning following last week's selloff. On the economic calendar this week are flash PMI readings for April on Tuesday, durable goods orders on Wednesday, U.S. 1Q GDP and pending home sales on Thursday, and consumer sentiment on Friday. Tesla shares are down ahead of its quarterly earnings tomorrow on news that the company cut prices by up to $2000 on several of its vehicles. The Dow was up 0.4%, the S&P 500 rose 0.5% and the Nasdaq gained 0.6%. Crude oil is trading above $83 per barrel and gold fell $64 to $2349 per ounce.

The cold hard message is sinking in. Higher rates are here to stay for longer than expected. Federal Reserve Chairman Jerome Powell has said multiple times that the Fed will be 'data-driven' when deciding on monetary policy. And the data has spoken. First, let's look at inflation. There has been great progress made in knocking inflation down from its peak of 9.1% in June of 2022. But achieving progress at the current lower levels, with inflation in the low-3% range, as expected, has been difficult. The Fed has been specific, saying inflation needs to be at 2% before restrictive policy will be eased. The Fed was patient after the January inflation data, and again with February data. But when March showed persistently higher prices, the Fed threw came right out and said that change can wait. Chairman Powell said the following last week. "The recent data have clearly not given us greater confidence..." and "If higher inflation does persist, we can maintain the current level of restriction for as long as needed." Now let's consider unemployment. The Fed again has been specific. Officials are looking for a 4.1% unemployment rate to gently (hopefully) slow the economy. Currently, the rate is not budging and is vacillating between 3.8% and 3.9%. Given the current macroeconomic backdrop, the following is a list of industries and companies we like that should benefit from a sustained period of higher interest rates. All are BUY-rated at Argus.

With divergent expectations for Fed policy roiling the markets, a systematic approach to understanding potential actions is more important than ever. The Fed's Monetary Policy Report contains a section on "Monetary Policy Rules." The March 2024 section says, "Policymakers regularly consult the prescriptions of a variety of simple interest rate rules without mechanically following the prescriptions of any particular rule." The report also says, "The policy rates prescribed by these rules have now declined to values that are close to the federal funds rate." In a 2016 speech, Loretta Mester, the president of the Cleveland Fed (and a current FOMC voting member) said "I believe in a systematic approach to monetary policy, but I don't believe we are at the state of knowledge where we can choose a single policy rule to set policy because no rule works well enough across a variety of economic models and in a variety of economic circumstances." The Cleveland Fed's website provides seven "Simple Monetary Policy Rules" and three sets of forecasts for economic conditions. Our chart provides the median funds rate from these scenarios (currently 5%) along with the seventy-fifth and twenty-fifth percentiles of estimates from the array of calculations. The current target range is 5.25%-5.5%. The best-known Monetary Policy rule is a formula developed by Stanford economist John Taylor. In a 2015 commentary for the Brookings Institution, former Fed Chair Bernanke offered the following. "The (original) Taylor rule predicts that the FOMC will raise the federal funds rate (tighten monetary policy) by one half point: for each percentage point that inflation rises relative to the Fed's target, assumed to be 2 percent; or for each percentage that output rises relative to its potential." The Atlanta Fed's website has a Taylor Rule utility that can be customized. We expect the Fed to start reducing rates in the second half of this year to 5.12%.

The stock market is in a rough patch for the first time since the July to October period of last year. After the major indices hit their secondary highs on April 11 (the Nasdaq hit its all-time high that day), is has pretty much been "down periscope." Out of those trading six days, the S&P 500 (SPX), Nasdaq, and Nasdaq 100 (QQQ) have fallen between 0.9% and 2.1% on three (SPX) or four of those days. Despite the very steep downside slope of the Big 3, NYSE breadth actually bottomed on April 12 and 15, illustrating that the selling has been concentrated in Big Tech and the many stocks that were overly extended on a momentum basis.

Monday Tee Up: Here Comes Big Tech

The Vickers Top Buyers & Sellers is a daily report that identifies the five companies the largest insider purchase transactions based on the dollar value of the transactions as well as the five companies the largest insider sales transactions based on the dollar value of the transactions.

The Vickers Top Insider Picks is a daily report that utilizes a proprietary algorithm to identify 25 companies with compelling insider purchase histories based on transactions over the past three months.

In this edition, rental equipment companies haven't dug moats yet; homeowners are repairing remodel spending numbers; GE Vernova might power through the gap between position and performance; and Santos, Crown Castle, and Melrose Industries.