Things you need to know ~
- ADP surprises to the upside and stocks get walloped
- NFP due out today…What will that reveal
- More FED mouthpieces continue to suggest hawkishness and rates well above 5%
- Oil is up – why? Oh, right the re-opening of China narrative (again)
- Try the Grey Goose Martini!
Oh boy – do I need a martini! Stocks got whalloped on Thursday after the ADP employment report revealed that we ‘restored’ 235k jobs, vs the 150k we expected…which means that the labor market remains HOT and that means that the FED isn’t going to stop raising rates….(This should not be a surprise at all).
Then we had Atlanta Fed Pres – Raffi Bostic telling us that the central bank ‘has much work to do’ while Kansas City Fed President Ester George said she expects rates to rise above 5%. Recall that on Wednesday – Minneapolis Fed President Neely Kashkari said that he sees rates rising to at least 5.4% before he thinks we hit neutral….All of these members – falling in line with what JJ said also on Wednesday… In a twist though, St Louis Fed President – Jimmy B – took a dovish stance (which IS a surprise) and said that he thinks we are getting closer to a ‘sufficiently restrictive zone’ – and while that seemed to help soothe the mood – it didn’t last for long at all.
By the end of the day – there was more blood on the street…the Dow closing down 340 pts or 1%, the S&P gave up 45 pts or 1.16%, the Nasdaq lost 154 pts or 1.5%, the Russell gave up 20 pts or 1.1% while the Transports choked – giving up 206 pts or 1.5%.
The only sectors in the green were energy – XLE + 1.8% and communications – XLC + 0.15%…. Everything else came under pressure.
Utilities lost 2.2% – Money coming out of a winning 2022 sector as the threat of higher rates pushed those names lower….now – think about it….Ute’s pay about a solid 3% divvy (maybe 4%) and so they are a safe haven until there is an alternative….….Treasuries are now all paying higher rates with a guarantee of NO capital loss…backed by the full faith and credit of the US gov’t. So when you have a 3 month note paying you 4.50%, with no chance of loss to principle, keeping you liquid and in the game – then you can see how anyone that was using Ute’s as that safety play, might decide they don’t have to anymore….They can cash out and put their money into treasuries….short duration and ride out the wave of despair and anxiety.
Now real estate also took it on the chin – XLRE down 3% as the idea of higher rates punched that group in the face as well. Tech – XLK lost 2% – no surprise there – both higher rates and the negative comments from MSFT CEO Nadella….saying that ‘tumult in tech will continue through 2025 – not until but THROUGH….so that’s 36 months of ‘hell to pay’ for tech….he highlighted how work from home and gov’t stimulus checks have now come to an end and that is forcing tech companies to become ‘fiscally conservative’….citing that there IS a real recession in large parts of the world…forcing everyone to have to adjust their priorities….and that helped to take all the ‘TECH’ big boys lower….MSFT -3%, AAPL – 1%, AMZN -2.4%, NOW -7%, PANW – 2.5%, NVDA -3.25%, AMD -3.6%, QCOM – 2%….notice the range of subsectors in that storm….Cloud ware, software, semi’s, cyber etc.…they threw everything into the pot….
The other issue are the daily announcements about who is next on the chopping block….most recently we found out that CRM and AMZN are joining a host of other tech companies in laying off workers…the list is long, but some of the more popular tech companies include: Adobe, Apple, Chime, Cisco, Coinbase Door Dash, Galaxy Digital, HP, Intel, Lyft, META, Peloton, Plaid, Qualcomm, Silvergate, Stichfix, Stripe and Twitter. These layoffs are happening now – so they aren’t showing up in the data yet, but just wait until next month.
**Now to be fair – Silvergate has some other issues on its doorstep…..FTX’s collapse forced a ‘run on the bank’ forcing Silvergate to sell assets at steep losses as $8 billion ran out the door…this is a fascinating story…the stock was trading at $162 in March and yesterday it closed at $12.57…a spectacular 93% decline….What are all those investment banks saying about Silvergate now?
And speaking of other FTX victims – Genesis Global Trading has laid of 30% of its employees and is now considering bankruptcy.
Consumer Staples were lower by 1% and Healthcare lost 1%…again – both sectors that had held up fairly well in 2022, so we saw some profit taking as investors look to preserve capital….in light of the unknown…..which is today….
The NFP report….what will that reveal? After yesterday’s ADP ‘surprise’, who thinks that today’s report will follow suit? Or will the NFP report suddenly show a decline in job restoration – suggesting that the FED rate hikes are working (which would contradict the narrative from yesterday). Then what? It’s all good? Stocks rally? Nothing to worry about?
Remember – they are expecting 183k new jobs, earnings m/m to be up 0.4% and earnings y/y to be up 5% all while the unemployment rate remains stuck at 3.7% – which is not what the FED wants to see…they want to see that data point rise…and remember – many economists on the street tell us that unemployment has to go to at least 5% for the FED to succeed….others tell us more than 6%. So, sit tight – we are only moments away…..
Now look – inflation has most likely peaked…July saw a 9.1% CPI reading while we saw an 11.1% PPI read…..As of last month – the CPI is now at 7.1% and the PPI is 7.4% – so that is good (but it took 9 rate hikes)….and we are still well above the 2% target they told us they were aiming for….so, there is more work to do…and it will most likely get more difficult to achieve….thus the hawkish commentary from JJ, and other FED members along with the published mins that were NOT unclear at all…so those investors / strategists/ analysts that keep ‘hoping’ for a FED pivot in 2023 are barking up the wrong tree….
Davey Bailin – Chief Investment Officer at Citi Global Wealth is calling for a rate cut ‘towards the end of this year’ as the unemployment rises….….another guy that isn’t listening…..Davey – unemployment would have to spike to 6% in short order to think that the FED will pivot….and unless I’m missing something – that doesn’t appear to be in the cards…We’ve had 9 rate hikes and the unemployment hasn’t budged….Now, I do expect it to start to move in the February NFP report and beyond – but will it move by a full 2%? (Possibly).
Wednesday’s JOLTS report showed that we have 10.5 million jobs available….so if, someone gets laid off – there is a job for them somewhere….doing something….unless of course they choose to stay home and collect. The recent data suggests that when you add up all the unemployment benefits and social programs – you could actually stay home and collect nearly $40k worth of income/benefits.
Like I said yesterday – 2023 is an off year…no election and no one to be beholden to….2024 is the presidential election cycle – so the FED can crush this year and then in the new year start to stimulate hoping that Americans forget what they did as the media attention will turn to the election cycle -where we can expect at least 30 people (15 on each side since I do not think Joey is running…..) to run for the office…But we have time until that starts….Right now they can’t even elect a Speaker in the House and that is causing immediate angst for the GOP while allowing the DNC to laugh all the way to the voting booths…. Have you noticed how the fight is being framed? This is good! It’s healthy! It’s democratic! Ok – let’s run with that…I say, it’s nuts…it’s not like they didn’t know what to do once the election was called back in early November. Don’t get me started….they all want to ‘fix Washington’….Come on! Who is kidding who…?
In the end – the mood is cautious and anxious…..as we await more policy decisions in the months ahead….Earnings season is only one week away…..
Oil – which was trading at $80 on Monday, then $72 on Wednesday – is now trading at $74 today….. They ran with the China demand destruction story on Tuesday sending oil lower and then they pushed the OPEC+ cut production narrative on Thursday and today it’s the China is re-opening story suggesting that demand will be strong narrative… which is why I say – stop the madness….Oil is going higher….Period. Remember – Joey needs to buy oil to refill the SPR on top of OPEC + Production cuts and the China demand story….so anyone expecting oil to trade down – again isn’t paying attention…..There is a floor here….and it has a 7 handle and if the Saudi’s have their way – it will have an 8 handle fairly soon. –
Gold holding steady at $1842/oz. My gut says it churns and then pushes higher….but the technicals do suggest that trendline support is at $1810 while resistance is most likely at $1900 for now.
Treasuries – Nothing new to say there….Yields remain elevated and that will pose a headwind for stocks as investors now have an alternative. Recall that the 3 month note is now yielding 4.5%, the 2 yr. is yielding 4.47% and the 10 yr. is yielding 3.72%.
This morning US futures are FLAT….Dow futures + 30 pts, the S&P down 4 pts, the Nasdaq down 30 pts and the Russell up 1 pt.
European markets are churning – but churning mostly to the upside…Eurozone inflation came in at 9.2% vs. last months read of 10.1% and as you can imagine that is causing so many over there to hope that the ECB pivots as well….It’s laughable….inflation is 9.1% and they think (or hope) that Chrissy Lagarde is going to cave? Apparently, they didn’t listen to her speech last month either….Let me remind you – she said ‘it ain’t happening…’ But, that’s what makes a market – both buyers and sellers.
The S&P closed the day at 3808 down 45 pts…. After testing 3802. Now a look at the chart does suggest that 3800 could be a level that finds support and we are about to find that out…..We remain below all 3 trendlines…as the markets attempt to make sense of the rhetoric. The 100 dma trendline has now crossed the 50 dma trendline….and that might just prove to be an issue for any sustained advance until we get more clarity on the eco data. The calls for lower do remain the popular narrative…but we know how quick that can change…Today’s eco data could be that catalyst…..or maybe not……but I would point that the FED mins are very clear that they are not pivoting or pausing anytime soon….slowing the rate of increases is not stopping the increases, just to be clear….
Remain alert, because any positive headline will create a knee jerk reaction that could see the market surge as the algo’s go into overdrive.
Take good care,
Chief Market Strategist
kpolcari@slatestone.com
Vodka Martini
Here is how you order it
“I would like a Grey Goose (or vodka of your choice) martini on the rocks, shaken, not stirred, a little dirty with 3 blue cheese stuffed olives. And a tall glass of ice water – Please!
Capital Grille on Wall St – does a fabulous job with these….
Happy weekend!
