Things you need to know.
– It was a Tale of Two Cities.
– NFP says strength – Unemployment says caution.
– These weeks bring us CPI, PPI and the FOMC meeting.
– Gold down, Bonds down, Yields Up, Oil Flat.
– US futures are lower, VIX is higher.
– Try the Grilled Pork Chops in Dijon Marinade
Stocks ended the day a bit lower – although nothing to write home about…. The Dow losing 88 pts, the S&P down 6, the Nasdaq down 40, the Russell down 23, the Transports down 49 while the Equal Weighted S&P lost 24 pts.
It was – A Tale of Two Cities – Talk about confusing! The NFP report – known as the Establishment/Payroll Survey – revealed that we created more than 270K jobs for the month of May – that was 90k MORE than expected. We also learned that the Average Hourly Earnings m/m and y/y ROSE by 0.4% and 4.1% respectively (more than expected – not helpful) … which suggests a hot jobs market and a FED on hold.
And then we got the Unemployment rate – known as the Household Survey – and that ticked up to 4% (from 3.9%) – and showed a loss of 408k jobs over the same period – which is a bit confusing, isn’t it? And that would suggest economic weakness and a FED on the move.
How can the gov’t say we created more jobs, yet the household survey say- not so fast boys…. …. sounds illogical, no? Well – The NFP focuses on job CREATION by employers, the Household Survey focuses on the EXPERIENCES of individuals and job seekers. So, while business may be ‘creating’ new jobs, it does not mean people are not LOSING old jobs. – leaving us to ask – WWTFDN? (What will the Fed Do Now?) … I say – do nothing!
Now this week – brings us 3 KEY data points – that will all try to steal the show….…. The other economic data points will all play supporting roles. And here is what you need to know…Tomorrow officially begins the FOMC June meeting and Wednesday brings us the FOMC announcement – (no change in rates is the expected consensus). Wednesday morning (pre FOMC announcement) brings us the May CPI (Consumer Price Index) report – which is expected to show top line inflation at +0.1% (down from +0.3%), while y/y is +3.4% (unchanged over last month). Core – excluding food and energy is expected to show +0.3% m/m and + 3.5% y/y – but remember – what we found out last month? PPI (Producer Price Index) was much hotter than expected (+0.5% m/m on top line and ex food and energy) which means that prices at the consumer level should also show an increase as manufacturers pass those increased costs onto the consumer. Now, if the CPI does not rise, then that means one of two things – the first is that someone is ’fudging’ the numbers or the second is that manufacturers are eating the increases (which will ultimately hurt their margins) – and who thinks that is really happening? So, I find it difficult to believe that the CPI does not rise beyond the estimates – but we are about to find out.
Then on Thursday – post the FOMC announcement -we will get the May PPI report – which btw – is expected to drop back down to prior levels…. leaving us again to ask – what is going on? Prices remain erratic, leaving inflation erratic which I think leaves the FED in pause mode as they don’t want to be seen as ‘erratic’. But I am only one voice.
Recall – we went from 6 – 7 rate cuts this year to no rate cuts to a possible 2 cuts…which are now mostly being priced in for November and December….There are a cohort of analysts that are still calling for a July & September combination of cuts, but I think that risks of being labeled partisan, of influencing the election – but hey – I guess it would NOT surprise me.
On the back of all of this – the Bond market got hammered – as traders were forced to dial it down on imminent rate cuts – (the swaps mkt now pricing in one cut in December). The sell off in bonds – the TLT – 1.8%, the TLH – 1.8% and the AGG -0.9% – sent 10 yr. yields surging by 14 bps to end the week yielding 4.43%. The 2 yr. yield rose by 16 bps – to end the week yielding 4.88%.….
And as you would expect – higher for longer sent Gold (and other precious metals) tumbling… Gold fell by $65 to end the day at $2325/oz (after testing $2400)…all while the dollar surged the most since January….rising 0.9% to end the day at 104.88…and this morning, the dollar continues to climb – rising another 0.3% at 105.24 and that is sending Gold down another $15 this morning as it tests $2300. Recall – I have been saying that Gold remains in the $2300/$2400 range – and we tested both that high on Friday and that low today.
Oil – which has also been all over the place – managed to hold tight (mid $70’s) after Friday’s economic data…. this morning – it is down 16 cts at $75.40. Now – a couple of things – higher for longer could potentially dampen demand, putting pressure on prices (how long have they been saying that?). And next – Iraq – the second largest producer of oil within OPEC+ is set to resume exports….once they reach a final agreement with the international oil companies – and all that will do is bring more supply to the market – and that too will put pressure on prices as it increases supply – which doesn’t mean they are killing demand, it just means there is more supply. Killing demand is when demand actually declines, not when supply increases. Oil remains in the $70/$80 range.
Now – NO – your eyes do not deceive you….NVDA is now a $120 stock – (the 10:1 split effective this morning) – so check your account – you should have 10’x’s the shares you had on Friday – but the price is also 1/10th of the price on Friday – so while you have more shares – you don’t have more money! LOL. This morning it is quoted at $120/$120.25.
US futures are a bit lower…. The Dow futures down 130, S&P’s down 15, Nasdaq down 63 and the Russell down 18. Recall that I said the relative strength for the S&P and Nasdaq revealed we were a bit toppy last week and that a pullback would not have been a surprise….and here you go…. weakness across the board….
Investors and traders ARE bracing for more volatility this week ahead of the FED/CPI double whammy and we are seeing that this morning… The VIX is up 8.5% at $13.25 in the pre-mkt as the sun makes its way across the sky……Trendline resistance is at $14.10….up 6% from here….Now depending on what the chatter becomes will determine how ‘anxious/fearful the market becomes….If the chatter becomes more cautious – then watch as the VIX surges and stocks back off.. If they can calm the whole thing down, then the VIX will subside, and stocks will churn in line.
Now will Wednesday’s FED announcement really make a difference. Not really, but if the market ‘hears’ something more hawkish than look for a drawdown and if the market hears something more dovish – then look for a rally. And if the market hears ‘we are on the fence’ then I suspect we’ll get more churn….and on the fence means – that they remain data dependent and while the data appears to be moving in the right direction – we are not there yet….
European markets are all under pressure…. France down more than 2% after the EU election that saw French President Manny Macron suffer big to the far right. He is now calling for SNAP elections after his party lost big to the far right…. Macron saying “I can’t act as if nothing has happened” – so the first round is set for June 30th and the second round on July 7th. Should Macro lose – he will be neutered until his term ends in 2027.
The S&P closed at 5346 – down 6 pts…. after making a new intraday high of 5375. As noted, – I suspect that we will have plenty of volatility this week – as investors, traders and algo’s prepare for and then digest the information. Remember – people hear, and markets hear what they WANT to hear vs. what is being said… Most of that will be at Wednesday’s press conference post the meeting. What will JJ say? How will he say it? Will he have changed any of the language? But that does not mean that the CPI and PPI do not matter – they do, because it offers insight into the path of inflation – which remains sticky….and therefore will continue to drive policymaker decisions.
The supposedly strong NFP report (which is still in question) is keeping the resilient employment narrative alive – defying expectations of an economy suffering from ‘restrictive high rates’ – likely keeping the FOMC in ‘cautious mode’– and remember – the FED needs to see the unemployment rate rise if they are going to succeed in seeing inflation fall – in fact recall -the narrative was that unemployment needs to have a 5 handle on it, if the FED is going to be successful.
While a pullback is imminent – do not rush…. Short – term Trendline support is at 5190 – representing a 3% move, Intermediate Trendline support is at 5115 or a 4.5% move…. ….Hardly anything to cause panic….Keeping cash on hand – that is earning 5%+ is an investment decision as we wait to see how this unfolds…You are invested – so you are not missing out and if we pull back you will have new opportunities to put more money to work. Remember – do not chase names/sectors that are extended.
Call me to discuss a long-term game plan to help you create long term and generational wealth.
Take good care, 
kpolcari@slatestone.com
Sources: Bloomberg, CNBC, Reuters, Wall Street Journal
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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, which may not necessarily align with our firm’s standpoint.
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Grilled Pork Chops in Dijon Marinade
Grilled Pork Chops in a Dijon Sauce – Summer time – grill time….so try this one on for size. This is easy to marinate and grill and presents beautifully –
For this you will need: Dijon mustard, brown sugar, apple juice, Worcestershire sauce, and bone in pork chops….
Marinade – Mix 1/2 cup each of apple juice and Worcestershire sauce with 1 cup each of Dijon mustard and brown sugar…. Mix well and add chops…. place the whole thing in a zip lock bag and refrigerate overnight.
Next day – remove from fridge and let come up to room temp….. light the grill and heat to high. Now add the chops and sear – turn heat to med and allow to cook for 5 – 6 mins (depends on thickness) and then flip over and repeat…. (you can dip the chop back in the marinade when you flip it).
When cooked – remove and cover in tin foil and let rest for 3 mins or so…. Present this meal on a plate with garlic mashed potatoes and corn on the cob (which you have boiled in a pot of water enhanced with butter and whole milk). Have a large mixed summer salad with red onions, tomatoes, cucumbers, ceci beans, and even blanched French cut green beans. Dress with a red wine vinaigrette and you are done.
Buon Appetito
