Jim’s Notes – Jobs Report Leads Stocks Higher

Moving the Market – July 5th

The markets were higher on Friday as hope came from the jobs report related to the Fed and interest rates. 206k new jobs were added in June. The expectations were for 190k new jobs. Unemployment rose to 4.1% well above the 3.9% prior. The average hourly earnings increased 3.9% in line with expectations. Overall the data shows a slowing in the job market putting pressure on the Fed to cut interest rates. When, is the question being pondered by investors? The outlook is for the first cuts to happen in September. That would give the Fed a couple more months of data and the hope that inflation will move closer to the 2% level. The actions will be a balancing act between inflation going higher by cutting too soon, or the economy slowing further by cutting too late. At least that is the storyline being sold by the talking heads. In the end, it is all speculation the challenge being how investors respond to the data and the actions taken by all. The dollar reacted by moving lower, interest rates were lower, gold was higher, and large-cap stocks were higher. It is easy to point to the soft jobs numbers as a catalyst for stocks moving to new highs on Friday, but the fact remains the ‘mag 7’ is driving the markets overall. The 10 biggest stocks in the S&P 500 now make up almost 40% of the index. Looking forward to next week we have inflation data out with CPI and PPI. It should make for fun times.

The major indexes closed higher on the day with some sectors showing stronger trading. Seven of the eleven sectors were higher on the day. The activity started slow but the buyers stepped in to push the indexes into positive territory. Friday the NASDAQ closed up 0.9%, DIA was up 0.2%, and the SP500 was up 0.5%. The SOXX was up 0.26%. Small Caps (Russell 2000) were down 0.4%. The ten-year treasury yield was 4.27% down 8 bps and TLT was up 0.8% for the day. Crude Oil (USO) was up 0.05%. (UGA) was down 0.1%. Natural gas (UNG) was down 4.5%. The dollar was down 0.3%. Plenty to deal with moving forward as we manage our money and emotions relative to the current environment.

Monday Outlook: The markets are back to the previous pattern of leadership… technology leading the upside with consumer discretionary pitching in. The markets push to new closing highs. The breadth remains challenged. Small caps were slightly lower along with midcaps. They are in a solid pattern and looking for a break higher from both sectors. Watching how the parts look relative to the whole. What are we watching? 1) The dollar moving lower. 2) Interest rates at 4.27% and still showing volatility relative to the outlook. The jobs report helped on Friday. 3) Crude oil remains above $80… The break higher is a concern for inflation data and the consumer. 4) Natural gas remains volatile breaking below the key support levels.

The chart below shows the breadth issue for the SP500 sectors compared from the beginning of the current leg higher that started in April. The technology sector is the only one to outperform the index… Note the rise in telecom last week.

Headlines Worthy of Note:

The US dollar has been strong along with the markets. The implications of the dollar are well laid out in the article and help investors understand the relationship with the markets. The last few days the market has moved lower in response to several speculation points. The largest is Trump being favored to win the election and how it will impact the economy both globally and domestically. In my view, it is way too early for that type of speculation. Another is the outcome of the UK elections and how that will swing the economy for Britain on the global economy… again too soon but closer. Another is the Fed will cut rates sooner rather than later. That is a more likely scenario for the dollar. All said we need to take note of the move and understand the implications to our portfolios and manage the risk accordingly.

Natural Gas hits 3-1/2 week lows on Friday. Some say production increase is to blame for the decline others want to blame the weather. Either way, the price has declined 27.5% since the high of June 11th. The question is does it continue to fall or find support? UNG broke key support at $16 on Friday opening the door for a potential move to $14. Worthy of attention near term.

Bitcoin and other cryptocurrencies have been falling quickly of late. The search for support is on. Friday they bounced at key support levels and we will watch how it unfolds. GBTC is down 20.8% from the May highs. Some say it is oversold some say it has room to move lower. COIN bounced back from early selling on Friday and ETHE gapped lower closing down 12.4%. When there is blood in the street there is opportunity. IBD explains the decline was caused by Mt. Gox fallout.

Quote of the Day: “I’ve failed over and over and over again in my life and that is why I succeed.” — Michael Jordan.

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