Things you need to know.
– NFP report has something for everyone! Smaller job creation, but upward pressure on wages
– AMZN surges by 8% while AAPL declines by 4%, Stocks go UP but end lower on the day.
– Treasury yields remain elevated as investors ponder the next move.
– Oil continues to push higher; Dollar backs off and gold rises.
– Try the Rib-Eye in a Maple Syrup/Bourbon Marinade
So, I am travelling on Monday morning…. on my way to Vegas to attend and speak at The Money Show (@MoneyShow) conference held at the Paris Hotel on the strip. You can find the info here….
In any event –here are my thoughts on what happened Friday and what to expect this week….
The market started strong on the back of the AMZN news and on the ‘mixed’ Eco news…. NFP job creation was a bit weaker (good), while unemployment fell to 3.5% and wages were up 4.4% (not so good).…. Investors saw 3 (whole) days of pressure that saw all of the indexes give up ‘some’ of the recent gains…not much, but some….and then on Friday – it appeared as if investors/traders and algo’s were concentrating on the ‘Goldilocks NFP report’ and the outsized results out of AMZN (+8.25%) – Hoping that the ‘disappointment’ out of AAPL wouldn’t play a role….and btw – the 4.5% move in AAPL is (and was) overdone (IMO)….but you can’t stand in front of a moving train – so what do you do, you step aside and let them slam it….in the end, it’s a better opportunity for the long term investor…..That 4.5% downdraft in AAPL took the stock below it’s 50 DMA leaving it now in the $176/$187 range….(those levels representing trendline support and trendline resistance). My sense is that it will test support and IF it doesn’t hold then $170 is a level that should find some long term buy interest ( it would also represent a 13% move off the high – something I am not convinced will happen)….So, keep your eyes on this one…..It is still up 40% ytd, so any sense that the market will come under more pressure could see traders/algo’s and some investors hit the SELL button….to raise quick cash….In the end, it’s Apple and I am not concerned about the fundamentals changing dramatically…they will make ~ $390 billion in top line revenues this year….They have an ongoing stock buyback program ($90 bil) and guess what – the holiday shopping season is only 2 months away….So who is kidding who? Be strategic, add to your position on weakness- ….in the end – You NEVER have enough!
And then we had the mixed eco report…. early indications were positive…. job creation was slowing – JJ is winning the fight! And then maybe not…..Wages were up more than expected and likely going higher still in the months ahead…(note all the Union contracts…and the UAW comes to the table in September, never mind the wage rates for service workers and the expected tips that ‘everyone’ is now entitled to), the unemployment rate – declined from 3.6% to 3.5% – again, not something JJ wants to see….So, as the clocked ticked and the weekend got closer – the mood changed…suddenly, the euphoria turned to gloom and doom and the algo’s went to work….sending wave after wave of SELL orders into the marketplace – causing the indexes to fail again…the Dow lost 150 pts or 0.4%, (500 pt intraday swing), the S&P gave up 24 pts or 0.5%,( 60 pts intraday swing), the Nasdaq lost 50 pts or 0.4%, (200 pt intraday swing), the Russell down 4 pts or 0.2% (20 pt intraday swing) while the Transports gave up 75 pts or 0.5% (210 intraday swing)….Not a disaster at all, but not a morale booster either…..This as investors/traders and algo’s are reconsidering what the near term looks like.
By now you are aware the Fitch ratings slapped the administration on the wrist – taking our AAA credit rating to AA+ (downgrade) citing among other things, the out of control spending, the inability of Congress to get their ‘sh*t’ together and the events of January 6th, 2021….Yes, you can’t make this up….January 6th 2021! Just fyi – many on the street paid zero attention to the Fitch move…Jamie Dimon, Warren Buffet and a host of others not fazed by the downgrade…
This move caused a sell off in bond prices – sending yields surging….leaving them at levels not seen 10 months…..the 2 yr. kissed nearly 5% while the 10 yr. traded at 4.2%….all while the 3 and 6 month bills held steady at 5.4% and 5.45% and all that does is cause some investors to reconsider the benefits of owning stocks (at the moment). You see, the NFP report was honestly a mixed bag….it had something for both sides…bulls and bears…but in the end – it does leave investors wondering – What happens next? And will the current 22 yr. highs in rates slow the economy in the months ahead or is the door still open to additional hikes? And there you also have two opinions…One says Yes, the FED is done and the other says No, they are not….
The VIX – Fear Index – surged last week (thus the decline in stock prices) – rising 30% to end the week at 17.10 – busting up and thru 2 trendlines….leaving it now in the 16.42/19 trading range….and if the tone gets more anxious – watch how fast we trade up and thru 19…..which would take us to the 25 ish level…..Now the VIX is the index – the VIXY is the ‘ETF’ way to play it if you think there is further downside…..Last week saw an 11% jump in the ETF – further downside will only push this higher…. …. but remember – that is a strategic play – short term oriented – the VIXY is not a long-term holding…. It cuts BOTH ways…. if the mood once again become euphoric – the VIX will fall and the VIXY will fall as well….
Oil prices – did what? Oh, they surged higher…. WTI was up 1.4% on the day at $82.82, it was up 3.5% on the week…. leaving it up 23% off the June lows of $66…and why? Pick your poison, a recovering China (or not), larger drawdowns of inventories in the US, extended production cuts by both the Saudi’s and the Russians causing the market to tighten around the world. Bloomberg reports that the Saudi’s are boosting prices to Asia while ‘staying the course’ on supply cuts for the rest of the world. And guess what else they are banking on…. Joey! Because at some point he is going to have to replace the oil in the SPR – better for them if he is forced to pay $82/barrel vs. $65…. but hey, what do I know……
In fact – Energy and Consumer Discretionary were the only sectors that were up on Friday….the XLE up 0.1% – on the back of oil strength – while the XLP rose a stunning 1.5% – recognizing that AMZN is 25% of that ETF and it rose 8.25% – had we not had the AMZN results – the XLP would have been down as well. The biggest losers on the day were Tech – XLK -1.4%, Utilities – XLU – 1.2% (think higher interest rates/bond yields), Consumer Staples – XLP down 1%, and Real Estate – XLRE down 1%…the other groups all down less than 1% on the day.
On the upside – we did have some winners…Metals and Miners – XME + 0.1% (AMR up 6.7% on the back of a stunning earnings report), Housing – XHB up 0.7%, Coal and Nat Gas stocks up, Semis were slightly higher and Airlines were up as well…not sure why – their service is horrendous….delay’s and cancellations are off the charts…..never mind the lack of comfort in the seats…..but they do have us over a barrel….they cut the number of flights, they are flying smaller planes – all in an effort to raise prices – because ‘demand is so high’… and if demand is so high, then fly bigger planes and add more flights….Whatever…..
Eco data this week includes Consumer Credit – it is expected to surge by $6 bill dollars vs. last month…. $13.5 bil vs. last months $7.2 bill…. Is that the sign of a strong consumer or a consumer that is desperate to keep the lights on? Wholesale Inventories, Mortgage Apps, Real Avg Hourly Earnings y/y and Real Avg Weekly earnings y/y – watch for what an uptick in those numbers mean. On Thursday – we will get the July CPI read and it is expected to be up y/y (not good) and Thursday will bring us the PPI report and it too is expected to be slightly higher…and these numbers do not reflect the recent surge in oil/gasoline prices nor the increase in wages seen as UAL, AA, UPS etc.…Like I have been saying, I think we will see an uptick in inflation in the months ahead and that will keep the narrative hawkish, suggesting that the FED is NOT done yet.
We are winding down on earnings season…and while we will get some – I don’t expect Bumble (BUMB) or Twilio (TWLO) to move the needle….but hey – weirder things have happened….In the end – more than 81% of the reports have beaten the numbers and of that – a large percentage have offered upbeat guidance….but in the end, it is going to be what happens next for the economy and for the FED. Most analysts have now pushed a recession out until 1st half of 2024….
The dollar settled at 102.00 – down 0.5%…..leaving it once again below all 3 trendlines…..which puts it back into the 99/102.40 trading range…..Now, it could thrash around here – as the FED does not meet again until late September….and while there might be lots of speculation around what’s next – until it happens, its just speculation….A weaker dollar will help Gold and we saw that on Friday…the weakness in the dollar helped to send gold up 0.5% to end the day at $1976/oz…after testing and holding trendline support at $1958 – a level I said last week, I thought would hold when we tested it.
Over the weekend – Uncle Warren (Buffet) released his Berkshire Earnings and he killed it….Insurance portfolio outperforming, while his bets on Fossil Fuels remains steadfast….OXY and CVX his two biggest names in the group. He is also loading up on treasuries – buying them in $10 bill lots… I mean, is there any other way to do it?
The S&P sits at 4478 – down 24 pts on Friday. I have been saying that I think the mkt is tired….and I still do…. I still expect it to back off over the next 8 weeks…. but I won’t complain if they push it up – why, because I’m invested and I’m invested in the names that are moving…. Investors recognize that we are stretched and that the market will take a breather…patience is a virtue…. You should not be chasing names that are running away…. There are plenty of other options and opportunities that will balance out and stabilize your portfolio for the longer term. Investing is a ‘long game’….
Take good care.
Chief Market Strategist
kpolcari@slatestone.com
“The market commentary is the opinion of the author and is based on decades of industry and market experience; however, no guarantee is made or implied with respect to these opinions. This commentary is not nor is it intended to be relied upon as authoritative or taken in substitution for the exercise of judgment. The comments noted herein should not be construed as an offer to sell or the solicitation of an offer to buy or sell any financial product, or an official statement or endorsement of Kace
Rib Eye w/Vermont Syrup and Bourbon Marinade
This is a simple marinade and is wonderful when grilling a nice sirloin steak or bone in Rib-Eye. Today I’m using Rib Eye….
For this you need: the Rib-eye, 1 cup of real Vermont maple syrup, ½ cup of Jack Daniels Bourbon, s&p and a shot of ground red pepper….
Mix well – and then use it to marinate your nice thick Rib-eye. (Overnight always works well). When ready – remove from the fridge and let it come to room temp.
Light the grill, get it nice and hot…then place the steak on the grill (turn heat to med) and sear on one side for 4 mins… (depending on thickness), then flip – and sear for 4 more mins… Remove and let rest for 5 mins covered. This should give you a nice medium piece.
Serve with a simple romaine salad w/scallion, tomatoes, cucumbers, red onions, and some feta cheese or Mozzarella (not both) and then season with s&p and oregano and dress in a simple lemon & Olive oil. Nothing complicated, just delish.
Buon Appetito
