Things you need to know –
– Strong NFP reports opens the door to hikes thru June.
– Unemployment goes down and not up, FED in a more difficult position.
– Deep recession fears are fading, some now calling for that soft landing.
– Dollar index rises, pushing commodities lower (think gold, oil etc.…)
– JJ to appear at the economics club in DC and Joey to deliver the SOTU tomorrow
– Try the Shrimp Scampi
DELL to CUT 6500 jobs – blaming the cuts on ‘plunging PC sales
Disney employee union demanding a raise -saying life in central Florida is too damn expensive
Sharply rising new car prices, prices many buyers out of the market
Tesla first cuts and then raises prices on the Model Y SUV
GS raises their short term S&P target to 4000 – saying a soft landing is possible
And the NFP report blows through even the most aggressive estimate! WOW…… the report shocked the markets and some analysts….rising by 517k jobs vs. the expected 190k jobs….weekly hours worked rose to 34.7 up from 34.3, labor force participation rose to 62.4% up from 62.3%….all while hourly earnings m/m remained the same +0.3% while earnings y/y rose by 4.4% which is down from last month’s rate of 4.8% (revised up from the original +4.6%). And the unemployment rate? That was supposed to rise to 3.6% – up from 3.5% but it did not – it fell to 3.4% – which is a problem for the FED.
And the ISM Services PMI – shot higher…coming in at 55.2 (expansionary) up from last month’s 49.2 (contractionary) and that is also not what the FED wants to see….because the US economy is a 75% SERVICES economy so to see this number surge while the FED is trying to slow things down – will only force workers (union and otherwise) to demand higher pay forcing the FED to stay the course of pushing rates higher for longer and then holding those higher rates for longer……something that they keep telling us and something that the markets apparently are not hearing….
So, what does it mean? Well, first of all, while the number was extremely strong, let’s not forget – many of those jobs – were returning ‘striking rail workers’ – so can we honestly say those were ‘newly minted’ jobs – No, we can’t – but that apparently isn’t important or being ‘fact checked’ by anyone in the gov’t or administration. But no matter – the fact is even after you adjust for those jobs – the number was still strong, stronger than the expectation…so again – what does it mean….
Well, it means that the FED is going to have a more difficult time IF their focus is to crush demand by crushing employment….Apparently, the 8 rate hikes – that are slowing parts of the economy are not slowing the job market….nor slowing wage increases….and that has the ability to continue to put upward pressure on prices (think inflation)…. But, you say, but inflation is coming down, no? Well, yes it is – in parts of the economy that do not help you in everyday living…I mean – how many times are you buying a ‘used car’ – because those prices are declining…. or how many times are you buying a home? Because those prices are declining too, but go to the super market and what do you find?
Higher prices for the things you NEED….Steaks, Chicken, Pork, Eggs, Milk, Butter, Pasta, Vegi’s and the list goes on….What about Utilities? Oh right, the price of electricity is up significantly….I mean my utility bill from Florida Power and Light (FPL) rose by 40% after they raised my electric rate by 18%…. – so to be clear – they raised rates by 18% and my monthly bill went up by 40%….Capisce? So, tell me – is inflation coming down for you? Is FPL going to cut utility rates? Hardly! So, how’s that used car taste? Good? Didn’t think so….
In any event – they tried to make the report into a positive, but investors weren’t having anything of it…..the strong NFP report coupled with the disappointing earnings /guidance out of the BIG 3 A’s – Apple, Amazon and Alphabet left the markets confused and when they are confused – they usually go lower until they can clarify the news and if the news still isn’t good, the market will continue to go lower……and that is exactly what happened on Friday…..(after they tried to rally, they failed) and by the end of the day all indices were lower….the Dow lost 127 pts or 0.4%, the S&P gave up 44 pts or 1%, the Nasdaq lost 194 pts or 1.6%, the Russell down 16 pts or 0.8% and the Transports lost 123 pts or 0.8%.
Ok – that being said – should you be fighting the FED or fighting the tape? While I would always say do not fight the FED, I have to say – it might not make sense to fight the tape either….the action of late – does suggest that many in the market are expecting the FED to navigate a soft landing and that would not be the disaster that MS is predicting or the one that GS was predicting…..(S&P 3000) and if that is the case – then the market has already priced in 2 if not 3 more 25 bp hikes…and appears to be ok with it. The question is – Are you? And that will then determine how you set this up….
You know me – I am not one to light my hair on fire and try to pick tops and bottoms and get in and then out and then in again…I am in the camp that you assess and then allocate – which leaves me overweight the STPN (Stuff that People Need) along with sectors that are sure to benefit in the years to come.
For me – that includes – Aerospace and Defense – especially in light of the drama last week and the elimination of the ‘balloon’ over the Atlantic on Saturday… Rhetoric out of China that Joey overreacted and that they ‘reserve to right to retaliate’ only adding support to this argument…..and remember I (along with others) also think that China is going to stir it up with Taiwan this year (during Biden’s 3rd year) – so I am adding to that sector.
Additionally – Artificial Intelligence (BOTZ +19% ytd)) needs to find a place in your portfolio along with Mid-cap value and some small cap growth – that you can access via IJJ (+14% ytd) and IJT (+11% ytd).
Now Friday saw 3 of the 4 best performing sectors of ’23 get taken down by more than 2% – Consumer Discretionary – XLY -3%, Communications – XLC – 2.1%, Real Estate – XLRE – 2.1%…. and that does make some sense – since these appear to be a bit ‘overbot’. The contra trades – the ones that get you short – did have an ‘ok’ day on Friday but are down substantially on the year. The PSQ – 13%, SH – 7% and the DOG is off by 2%. And those reflect the exact opposite of the indexes they represent….. Nasdaq + 14%, S&P + 7% and the Dow is + 2.4%.
The Value trade (SPYV) and the Growth Trade (SPYG) continue to struggle for the lead with value up 8.5% and growth up 7.3%….
The dollar index – DXY surged on Friday – on the back of the strong NFP report….think higher rates will cause the dollar to move up…..which it did, causing commodities to move lower – which they did….. The DXY ended the day up $1.21 or 1.2%…this morning it is up another 44 cts or 0.4%….
Oil continues to get hit over the head – rising to $78 on Friday morning only to end the day at $73.39 as they managed to stir up anxiety over rising rates/strong dollar (due to the strong NFP report) and falling demand due to a slower China re-opening and cautious comments by the Saudi’s – who are usually expected to cut production when prices fall- though they remain pensive at the moment………..….There is talk though on Bloomberg that ‘several prominent analysts’ are warning us that rising demand around the world is about to push prices beyond $100/barrel….(that would be a 37% rise from current levels) and remember – Joey still needs to refill the SPR and was looking to be a buyer somewhere in here….Keep your eyes on the Saudi’s they ultimately hold the key, since Joey has neutered the US’s position as the swing producer. Oil is trading up 23 cts at $73.62/barrel.
Gold fell $56 on Friday – on the back of the strong NFP report and the rise in the dollar and that suggests the FED is going full speed ahead…and not pausing or pivoting….. but I do think the move was a bit overdone and this morning Gold is trading up $9 at $1,885/oz…just a hair above the short term 50 moving average. My guess is that the dramatic move lower was a knee jerk reaction – since nothing has really changed….the economy remains stronger than what the FED wants so expect rates to continue to move up, yet I am still in the camp that Gold will be a beneficiary as inflation remains stubborn.
US futures are lower…. ….Dow futures down 275 pts, the S&P off 42 pts, the Nasdaq down 155 pts and the Russell down 20. JJ Powell is due to give a speech to the Economics Club of Washington tomorrow (afternoon) and we can expect that all eyes and ears will be on him as he takes the podium…recall that it was his comments on ‘disinflation’ ( a word he used 15 times) that caused the algo’s to push stocks higher….assuming that the end of rate hikes is near – which it is not….we have at least 2 more hikes on the table if not 3….many now suggesting that we won’t see a pause until June – which means if we get 3 more 25 bp hikes – we will be at 5.25% – 5.5% – a level that is not out of the question…
In addition Joey is set to address the nation on Tuesday evening – expect him to downplay anything that has to do with inflation while telling us that his out of control wasteful spending plans are for the public good. Do not expect him to address the ‘China issue’ – the balloon or Taiwan -either….It doesn’t fit his narrative. No one should be surprised if we see stocks consolidate back to the trendline at S&P 4000….over the next couple of weeks.
European markets are also lower as investors across the continent are digesting the data, the earnings and the recent surge higher across those markets….markets are all down better than 1% , with France under the most pressure down 1.6%. Higher rates in the US will most certainly mean higher rates across the Eurozone – something that was made very clear in last week’s ECB announcement, so look for more consolidation across the continent.
The S&P closed the day at 4136 – down 43 pts……trading as low as 4123 before finding any support. We are still holding well above the trendline at 4000, but as I said – do not be surprised to see stocks consolidate and test that trendline as they digest all of the data –macro- economic as well as micro-economic. We are starting to see many high-profile people – who had been more bearish suddenly become neutral to more bullish suggesting that the FED can navigate a soft landing….Hmmm, Interesting…because I am still not in that camp (yet), I just don’t see how they can do it, but I’m willing to be proved wrong.
Remember – build a strong foundation…. dollar cost average into it and keep reinvesting all the divvy’s is the plan…. Buy names on weakness (as long as the weakness is not a fundamental shift in the sector or the name).
Take good care.
Chief Market Strategist
kpolcari@slatestone.com
Shrimp Scampi
This takes all of 12 mins to prepare and serve….an easy dish that appears harder than it is….
You need only a couple of things….1 lb. of large cleaned, deveined shrimp, butter, olive oil, garlic, lemon, white wine, chopped parsley, s&p, a lb. of linguine and of course plenty of fresh grated parmegiana cheese.
Bring a pot of salted water to a rolling boil – that takes about 10 mins and then add linguine…..cook for about 8 mins or until aldente….
In a sauté pan – melt butter and add a splash of olive oil, add crushed/sliced garlic……and sauté….keep heat on med so that you do not burn the butter or garlic…..
next add shrimp, s&p and sauté quickly until nice and pink on both sides…no more than 5 mins
Now add the juice of one lemon, complement with some white wine…about 1/4 cup…in pan – and a wine glass full for you – turn heat up to high and let the alcohol steam away.
Strain pasta – reserving a mugful of water – add pasta to sauté pan – mix and serve….You may need to add back a bit of the pasta water to keep moist -as the pasta sucks up the juice…. Serve in warmed bowls with fresh grated cheese at the table.
Buon Appetito.
