Things You Need to Know
- NFP disappoints and then May and June get adjusted.
- Algo’s reaction immediately and it wasn’t pretty.
- The sexy growth names get smashed – no surprise there.
- BLS commissioner gets a pink slip.
- Bonds surge, Yields decline, Gold Up, Oil Down, VIX surges.
- Try the Summer Caccio e Pepe.
The NFP disappointed – we created only 73k new jobs vs. the expectation of 110k — but it was the revisions to May and June that blindsided everyone and sent stocks reeling. The shocker? The BLS commissioner revealed that she was adjusting the May and June numbers lower – not by 10k or even 50k – she adjusted them by 250k jobs…. admitting that the job numbers weren’t quite what they seemed. That opened the door for Trump to dismiss Erika McEntarfer, accusing her of “rigging the numbers” to make him look bad.
And that was all it took — the algos tripped over each other racing for the exits.
Stocks tanked. Bonds surged. Yields plunged. Crypto paused. And the VIX? It spiked 22%, blasting through all three trendlines.
Remember what we said — the VIX was sitting at levels that screamed complacency.
The indexes had been making “new highs,” driven by a narrow group of names — leaving zero margin for error. As we warned, they were priced to perfection — investors betting not only that everything would go right, but that it would exceed even the rosiest projections. Everyone is asking: what could possibly go wrong? Well, now they know.
That’s a high bar — and Friday’s action proved just how fragile it really was.
The Dow lost 542 pts or 1.25%, the S&P lost 101 pts or 1.6%, the Nasdaq down 472 pts or 2.25%, The Russell down 44 pts or 2%, the Transports down 342 pts or 2.2%, the Equal Weight S&P down 80 pts or 1.1% while the Mag 7 got crushed – falling 900 pts or 3.05%.
In the end, here’s what you need to know: the labor market is not as strong as it appeared — and that revision all but cements the case for a rate cut in September (with October and December likely to follow). The only real question now is: will it be 25 basis points… or 50?
In fact, the current odds now show a 75% chance of a cut in September. Some are even floating the idea of an intra-meeting cut — meaning the Fed acts before the next scheduled meeting. And here’s the issue with that:
If they cut now, are they admitting they missed it? That the economy is in worse shape than they’ve been letting on? Would an unscheduled move scream desperation — or simply reflect that they’re responding to a meaningful shift in the data?
The Fed’s challenge is this: they don’t want to spook the markets, but they do want to show they’re paying attention. My take? If they move early — especially after a weekend full of headlines and analysis — the markets would probably be okay with it. In fact, if the right voices keep making the case publicly, investors might actually welcome the move as decisive, not panicked.
Now to be clear, while the indexes screamed disaster – there were pockets of strength…. Consumer Staples rose by 0.5%, Healthcare up 0.6%, Utilities up 0.15%, Home builders up 2%, even Big Pharma (which has been under attack) was up 1.9%. Of course the contra trades had a stellar day – the DOG up 1.4%, the SH up 1.7%, the PSQ gained 2%, the VIXY rose a stunning 7.9%, the SPXS +4.7% while the SARK (short Disruptive Tech) rose 5.7%.
On the downside – it was Consumer Discretionary that took the hit – down 2.4%, Tech down 2.1%, Energy – 1.8%, Industrials – 1.5%, Communications – 1.2%, Basic Materials – 1.1% while Real Estate lost 0.3%.
We also saw weakness in the value trade – 1.3%, the growth trade – 1.8%, Semi’s – 1.2%, Cybersecurity – 1.6%, and Retail – 0.8%.
Now bonds celebrated the news…the TLT and TLH rose by 1%. Yields plummeted…the 2-yr falling 27 bps to end the day at 3.68%, the 10 yr fell 25 bps to end the day at 4.21% while the 30 yr fell 8 bps to end they day at 4.83%.
Oil dropped $2 or 2.9% to close at $67.26/barrel. The blame? Most headlines point to the weak NFP report — the logic being that softer job growth signals a weakening economy, which would mean lower energy demand.
Mmm… I’m not buying it.
To me, this felt more like a knee-jerk reaction to a surprise — not a fundamental reassessment of the economic outlook. Yes, the number caught markets off guard, but that doesn’t mean the economy is stalling.
Look — OPEC+ has been increasing production, bringing more supply into the market, and that alone puts downward pressure on prices. But at the same time, you’ve got geopolitical tensions — Russia-Ukraine still simmering and now talk of secondary sanctions targeting Vlad unless he dials it down. That’s a bullish force for oil.
So here we are — stuck in a classic push/pull dynamic.
And just to stir the pot more, over the weekend OPEC+ said all options are back on the table — raise output, cut it, or hold steady. No clear signal, just more uncertainty. The bottom line? Don’t overthink it. Friday’s drop was a reaction, not a reset.
And so — what do you think gold did on Friday? It surged — up $67 or 2% — to close at $3,416/oz, driven by the wave of hysteria around softer jobs data, renewed tariff threats, and shifting rate expectations.
Now, remember what I told you — once gold broke below the apex of that triangle chart pattern, it would likely find support at the intermediate-term trendline around $3,340. And guess what? It did exactly that.
Then Friday’s headlines flipped the narrative — and gold took off. We’re now hugging the short-term trendline at $3,410, a key technical level.
If this wave of anxiety dies down — and that’s a big “if” — I’d expect gold to back off a bit. But don’t expect much movement until we get more clarity from next week’s CPI and PPI reports. That data will set the tone for the next move.
US futures are taking a big chunk of Friday’s sell off back…. Dow futures are up 270 pts, S&P’s up 42, Nasdaq up 188, while Russell is up 18. Look, the sense is that Fridays’ reaction was a bit of an overreaction, but this is what you get when the algo’s take control….and while investors are forced to consider what the new data suggests, my sense is that cooler heads will prevail. The bulls are not down and out and nor is the economy……
Yes, Goldman came out to stir the pot, not wasting one minute…. saying that they expect even more revisions next month – Hmmm, that’s funny. Did Goldman predict the weakness that was reported on Friday or are they just jumping on the band wagon to create more havoc?
Eco data today includes Factory Orders expected to be down 4.8%, Durable Goods down 9.3% – my sense is that if these numbers surprise to the upside then much of the hysteria will subside…. This data comes out at 10 am.
With futures up – the VIX is down 6.8% and if the eco data does surprise – expect that the VIX will drop further….if the eco data suggests more trouble ahead, then look for the VIX to make a U turn and for stocks to continue to fall.
European markets are all higher…..as they too take it all in stride. Switzerland is the only one that is under pressure (-1.5%) following Friday’s shocker – and I don’t mean the NFP report! I mean the 39% tariff rate being imposed on them. The question is – Can they negotiate a better deal before August 7th? The announcement raising the risk of a recession in that country – just fyi – rates in Switzerland are already at zero. You can’t really go much lower…I mean you can, but do you really want to? Away from Switzerland – Italy is up 1.8%, Spain +1.4%, Euro Stoxx and Germany up 1.25%, France up 0.8% and the UK is up 0.3%.
The S&P closed at 6238 down 101 pts…now Friday’s action did create a gap in the chart (6327/6287) – my sense is that if cooler heads prevail – we will fill that gap, but will continue to churn lower over the month of August and into September as I have been saying all along.
I remain in a holding pattern, and I am thinking that a 4 – 5% pullback is not out of the question- that would take us to 6100 – and then we should see a rally back to here by year end….. Again, I would not chase anything, you are invested so you are participating, if you are participating in 401K then just leave it alone, it will do the right thing. Prices fall, you buy more, prices rise, you buy less – It’s the beauty of dollar cost averaging for the long-term investor.
Want to talk about strategy? Let’s review your plan. Call me for a complimentary, no-obligation portfolio analysis: 561-931-0190.
Take good care,
Sources: Bloomberg, CNBC, Reuters, Wall Street Journal
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Summer Caccio e Pepe…
This is a great summer dish, full of color and flavor and simple to make.
You need – ½ lb. of spaghetti, a carton of YELLOW cherry tomatoes, shallots, garlic, butter, olive oil, fresh lemon zest, plenty of fresh grated Parmegiana cheese, s&p.
Bring a pot of salt water to a rolling boil.
Begin by heating up a large sauté pan, add a dollop of butter and some olive oil. Toss in 2 cloves of garlic (whole) and the yellow cherry tomatoes. Season with s&p. Sauté until softened.
Now put it all into a food processor and blend until smooth. Take the sauce and add it back to the sauté pan – straining it thru a mesh kitchen strainer to keep out the skins of the tomato. You want smooth sauce.
Add the pasta to the water and cook until aldente. Now add the pasta directly into the sauté pan and mix well. Add in a ½ ladle of the pasta water and 2 handfuls of the fresh grated cheese. Add it to the zest. Toss and mix until you have a nice creamy sauce coating the pasta.
Serve immediately and enjoy yourself with a chilled glass of rose wine.
Buon Appetito!