Jim’s Notes – Weaker Jobs Lift Stocks

Moving the Market – May 4th Weekend Update & Outlook

The April Jobs Report was the main headline on Friday as it raised concerns about consumer spending and business investment. It revealed a cooling labor market with narrower job gains across several major industries. The reality is that 175,000 new jobs were added versus the expected 230,000. The topline miss was not that big, but when you have a market that desperately wants interest rate cuts from the Fed… you make it a big headline. Even more so, the unemployment rate JUMPED from 3.8% to 3.9%! Bar the doors nobody is working anymore, well that part is true. The participation rate remained at 62.7%. Interestingly the wage growth number declined versus an expected increase. That was welcome news versus the Q1 data showing wage inflation. As expected, the February data was revised lower… 270k reported lowered to 236k adding to the excitement about lower employment… remember rate cuts are the goal not a country with an employed workforce. Enough said, The markets gapped higher at the start of trading and held the gains throughout the day and closing near the highs. For the week, however, it was a rollercoaster ride as the S&P 500 gained just 0.5% and the NASDAQ was up 1.4%. It was a week filled with data that prompted speculation from fear to jubilation. Apple did its part to push the NASDAQ higher missing earnings but the stock rose 6.2%. It is an interesting world for stocks where bad news is viewed as good news currently. According to LSEG data, 397 companies in the S&P 500 index have reported earnings thus far for Q1 and 77% were better than expected. Speculation is on the rise and we need to manage our risk accordingly.

The major indexes were higher on the day as investors put money to work believing the Fed is receiving data that would allow them or encourage them to cut interest rates. The best part of dreaming is it avoids reality. The leadership came from technology, small caps, and REITs… as the current laggards shift gears. Ten sectors closed in the green. The NASDAQ closed up 2%, DIA was up 1.3%, and the SP500 was up 1.2%. The major indexes closed higher. The SOXX was up 2.6%. Small Caps (Russell 2000) were up 1.2%. The ten-year treasury yield was 4.50% down 7 bps for the day. Crude Oil (USO) was down 0.9%. (UGA) was down 1.5%. Natural gas (UNG) was up 5.3%. The dollar was down 0.4%. We are focused on managing the risk in the current environment and letting it unfold.

Monday Outlook: Markets were higher on weaker-than-expected jobs data and AAPL Friday. The economic data remains ugly. We have added positions on the near-term optimism towards stocks albeit speculative at best. Thus, short-term trading opportunities. Commodities were flat to marginally higher and still looking for upside in the sector to returen. The dollar fell 1% the last two days and interest rates declined 18 bps to 4.5%. All interesting developments and point to stocks higher near term. Rotation remains as the S&P 500 index breaks the current downtrend and renews the upside. XLK, XLP, XLU are the current leaders.

Chart of Sectors: This chart starts at the previous high for the S&P 500 index on March 28th. Watching the bounce from the April 19th low currently for the leadership. It has been a mixed week as seen… rotation remains in play.

Charts to Watch: See Notes on “Reality of the Markets”

Headlines Worthy of Note:

Response to Apple’s earnings are the perfect example of how the market mentality currently is. Apple’s falling iPhone sales don’t bother Wall Street so long as margins, buybacks are increasing. The media and analysts alike sound like the White House talking about the economy… so what if they missed earnings, they will make it up in the falling iPhone sales.

Google’s antitrust lawsuit is hearing closing arguments and it isn’t looking great for Google. This will have an impact on the search sector of technology regardless of the decision by the judge. Watching how this impacts the stock as well.

President Biden will continue to use TikTok to campaign even after banning it in the US. This was reported by the Financial Times. The law calls for TikTok parent ByteDance to divest itself from the app within the next year. If not, it will be banned in the US… The deadline is January 19th coincidentally the day before the presidential inauguration. Go figure.

Quote of the Day: “An optimist is a fellow who believes a housefly is looking for a way to get out.” — George Jean Natha.

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