NEWS
Follow-Through Friday

Apple and the rest of the tech sector soared today, pulling the rest of the market higher with it and closing the major indexes in the green for the second straight week. Weaker employment data also helped buoy bonds and renew 2024 rate-cut hopes. Let’s see what else you missed. 👀

Today's issue covers lagging labor market indicators finally playing catchup, Cloudflare adding to the cyber sector’s growth concerns, and a chart that suggests an improving May outlook for the S&P 500. 📰

Here's today's heat map:

11 of 11 sectors closed green. Technology (+2.76%) led, & energy (+0.01%) lagged. 💚

It was another mixed day of economic data, with U.S. ISM Services PMI missing analyst expectations and falling into contraction territory for the first time since December 2022. Nonfarm payrolls also missed handily, but we’ll cover that more in our main story below. 🔻

Amgen shares jumped 11% after releasing positive initial data on its experimental weight loss drug, sending Eli Lilly and Novo Nordisk lower due to concerns about increased competition. 💉

Online travel booking giant Expedia plunged 15% after issuing lower-than-anticipated guidance for its fiscal second quarter as its Vrbo segment drags down results. Several firms, including BMO Capital Markets and Piper Sandler, downgraded the stock over growth concerns. ⚠️

Shares of payment giant Block popped initially after its revenues and earnings topped expectations. However, they gave back all of their gains as concerns remain about heavy competition weighing on longer-term margins. 💳

P.S. I’m attending a wedding in Spain today and want to give a warm welcome to Josh and the others I recruited to join our mailing list over drinks. Keep saving my seat; I’ll be back to the after-party shortly! 🍻

Other active symbols: $GME (+29.07%), $ALCC (+15.77%), $HIMS (-8.01%), $BYND (+13.52%), $BENF (+255.21%), $SGBX (+89.08%), $CTMX (-12.28%). 🔥

Here are the closing prices: 

ECONOMY
Nonfarm Payrolls Deliver A Material Miss

For the last eighteen months we’ve seen significant softening in the majority of the labor market’s leading indicators like quits, job openings, wage growth, and more. However, coincident/lagging indicators like nonfarm payrolls or the unemployment rate have held firm relative to Wall Street’s expectations. 🤔

That is at least until today…

April’s nonfarm payrolls rose by 175,000, falling well short of the 240,000 expected by Wall Street. The unemployment rate also ticked higher to 3.90% vs. expectations for it to stay at 3.80%. 📊

As the chart below shows, job growth has been slow and steady, beating the conservative estimates economists and the Fed were putting out throughout much of 2023. However, as we’ve all come around to the “soft landing” narrative, we may be seeing a shift towards expectations being too optimistic compared to reality. 😬

Of course, this is great news for the Fed, which has been trying to weaken the labor market enough to reduce wage growth and its upward pressure on inflation. The YoY percentage change in average hourly earnings dropped to a new cycle low of 3.90%, still outpacing inflation but down from its reading of 5.90% last April. 📉

This positive development helped increase the odds of rate cuts coming in 2024, though the market isn’t getting ahead of itself just yet. We’ll have to wait and see if there’s continued follow-through in these numbers over the next few months…or if this is an anomaly we can ultimately ignore. 📝

EARNINGS
$NET’s Cloudy Outlook Interrupts Its Turnaround Attempt

With all the high-profile cyber incidents happening and increased regulatory requirements for public companies, you’d think that the cyber security stocks as a group would be firing on all cylinders. Unfortunately, as we’ve covered extensively in the newsletter, that just hasn’t been the case. 🙃

Instead, broader macroeconomic concerned, reduced/delayed spending from core customers, and individual execution issues have weighed on these company’s businesses and share prices. And these companies have not helped themselves either, as their guidance has been spotty at best, creating large gaps between expectations and reality.

Cloudflare is the latest victim of this trend, reporting first-quarter earnings ($0.30 per share) and revenue (+30% YoY to $378.60 million) that topped estimates but delivering guidance that was just “in line” with expectations. 😐

Its unchanged full-year guidance indicates 27% YoY growth, which is solid but lower than what it has recently been able to deliver. In simpler terms, growth is slowing…and that’s a problem.

Rival Fastly’s warning of pricing pressure with top customers already had the sector on edge, so Cloudflare’s warning of decelerating revenue growth (no matter how small) was enough for investors to throw in the towel. ⚠️

Despite Wall Street’s concerns pushing the stock back into the middle of a two-year trading range, retail investors remained optimistic. The Stocktwits sentiment meter remains in “extremely bullish” territory as investors and traders debate Cloudflare’s merits. 🐂

We’ll have to wait and see if their patience pays off. But for now, the Cybersecurity ETF $HACK remains one of the key technology sub-industry groups that’s failed to eclipse its 2022 highs… exhibiting clear relative weakness in a market that’s been as strong as one could hope for. 🙃

Notably, Microsoft CEO Satya Nadella’s internal memo confirmed the company is tying top executives’ compensation to their ability to overhaul their cybersecurity processes after a recent series of attacks. So clearly, it is a priority for businesses and should buoy the industry long-term, but it remains a constant moving target, which makes forecasting difficult and increases share price volatility. 🔮

STOCKTWITS “CHART ART”
Mid-Term Moving Average Improves May Outlook 👍

Sometimes the simplest methods of trend following are often the best at keeping people’s eyes on the bigger picture. And that certainly seems to be the case for Stocktwits user Kay Kim, whose mid-term moving average and momentum indicator are both pointing to higher prices ahead. 📈

His chart below shows the previous periods where the S&P 500 reclaimed this moving average and saw momentum move back into positive territory, sparking meaningful rallies as long as those conditions remained intact.

Kay’s commentary suggests that if the S&P 500 can hold today’s gap up and follow through, then the path of least resistance is higher. With Stocktwits community sentiment sitting in neutral territory, it seems not everyone is on board with that assessment. So we’ll have to wait and see who’s right. 🤷

If you liked this chart and commentary, you’ll love our “Chart Art” newsletter. We’ll deliver you the best trade ideas and analysis from the Stocktwits community every evening by 8 pm ET.

And if you need another reason to join, you’ll receive a welcome email with a list of the top Stocktwits chartists to follow for real-time posts like this.

Bullets From The Day

🚀 After a series of setbacks, Boeing’s Starliner is ready for its big moment. Late next Monday, it'll make its first crewed journey to the International Space Station with two NASA astronauts on board, launching from Cape Canaveral. Despite previous delays, this mission is seen as a crucial step for NASA and Boeing in advancing the U.S. Commercial Crew Program. Optimism is high, with a 90% chance of favorable launch weather, signaling a significant leap forward in space travel partnerships and technology. MarketWatch has more.

🏦 Federal Reserve Governor Michelle Bowman voiced support for maintaining the current policy rate. However, she cautioned against potential inflation risks. Speaking at a banking conference in Key Biscayne, Florida, Bowman indicated readiness to hike rates if inflation doesn't continue its expected decline. Her outlook emphasizes persistent inflationary pressures, including disruptions from abroad and recent financial relaxations, which could necessitate a strategic adjustment in future monetary policy. More from Reuters.

📉 The Yen has rallied significantly, recording its strongest week since November 2022. This upswing, marked by a more than 1% climb to 151.86 against the dollar, reduces the likelihood of Japan needing to intervene to bolster its currency. Recent interventions were speculated after the yen hit a record low earlier this week, but positive shifts in the market could change Japan's defensive stance. This turnaround is a breath of fresh air for Japan's financial officials, who are amidst ongoing economic adjustments that attempt to balance inflation risk and growth. Bloomberg has more.

🔔 Johnson Controls International is reportedly considering selling its ADT alarms business, which operates across Europe and Latin America. Early discussions suggest the sale might occur later this year, with potential private equity interest already brewing. Despite not disclosing financial details, estimates hint the unit could be valued at under $1 billion. Johnson Controls, whose shares rose on the news, continues to refine its focus. More from Reuters.

Links That Don’t Suck

💰 SVB agrees to sell venture capital arm for $340 million

❌ Tesla’s HR chief leaves company after swathe of job cuts

🛳️ "Big Nude Boat" offers a trip to "bare-adise" on a naked cruise from Florida

⌛ Paramount won’t extend exclusive deal period with Skydance amid Sony bid: sources

⚡ Biden grants automakers some flexibility on battery minerals in final EV tax credit rules

🚨 SEC charges Trump Media auditor with ‘massive fraud’ on hundreds of companies, imposes lifetime ban

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