NFP reports crushed it. We created 128k new jobs vs. the 80k that was expected, confirming the fact that the US economy is still on firm ground. Employers are hiring and the consumer is spending. Unemployment ticked up by 0.1% to 3.6%, still at 50 year lows as more people came out looking for work. Wage growth held steady and rose 3% year/year. The market exploded higher, the S&P and Nasdaq made another new closing high as the Dow and Russell trailed closely behind. By the end of the day, the Dow gained 303 points or 1.1%, the S&P rose 29 points or 1%, the Nasdaq surged by 94 points or 1.1% and the Russell was the day’s star performer, gaining 26 points or 1.7%.
It’s a MELT UP as it now appears that shorts are throwing in the towel and covering positons, which makes them a buyer. Then you have asset managers that were being patient waiting for stocks to pull back in October — which they didn’t do — although they had many reasons to jump in and put money to work. So they become buyers… and then you have money coming out of the treasury market which usually finds its way into stocks — creating more buyers and then you have stock buybacks — always a good source of support and then you have the monthly inflow of 401K and other retirement plans which produces a built-in flow of capital offsetting retirees that are taking money out of retirement plans and thus out of the market.
And I haven’t even mentioned China yet; which is fine, because apparently no one else is either. But we should note that on Friday, the Minister of Commerce in China did say that trade negotiators did reach a “consensus in principle.” Which means what exactly? I mean I thought we reached that “consensus” three weeks ago? Talk of when Phase One will be signed is still up in the air, and talk of advances in Phase Two and Three in clearly in question. Last week, Xi Xi announced that he is not sure that any trade talk will move ahead due to Trump’s “irrational behavior.” Investors/traders and algos do not appear to be concerned. But, let’s see what happens when earnings end this week and the focus returns to the broad macro data points. One of those will be the state of US/China trade.
It was another round of strong earnings that continues to tell the story of a strong economy, putting to bed any fears that we’re about to roll over and die. While we may be seeing a bit of a slowdown in certain parts of the economy, it is by no means a sinking ship. Lately, you may have heard analysts and strategists talking about the “Goldilocks” economy. That’s what happens when everything is “just right” – not too hot and not too cold – but strong enough to put to bed any fear of recession. It’s clearly not strong enough to force the FED to raise rates as there is no fear at all of inflation rearing its ugly head.
The latest cut only helps to continue to fuel this rally as the FED serves up more Kool Aid. In this lower rate environment, the FED hopes to “encourage” more businesses to borrow money for capital expenditures. It will more likely be used to repurchase stock, while encouraging investors to join in the fun and buy stocks. And if Friday’s news did anything, it removes (for now) any other reason for the FED to cut rates again anytime soon. So, while there may be some looking for a December rate cut, that number has fallen dramatically, leaving little chance that this conversation will continue.
Over the weekend, US Commerce Secretary Wilbur Ross announced that American firms will be able to apply for licenses to start doing business with Huawei “very shortly.” He seemed to verify what China’s Minister of Commerce said on Friday that we have made substantial headway with Phase One. That is sending global markets higher this morning.
Stocks in China jumped 0.58%, stocks in Hong Kong advanced by 1.4%, Japan was closed for a holiday, and Australian stocks moved ahead by 0.27%.
European stocks are starting the day in the plus column over that “renewed trade optimism” conversation over the weekend. Europe is awaiting manufacturing data out of a number of member states including Spain, Italy, France, and Germany as well as the European Union as a whole. In the UK, campaigning continues as the Dec. 12 election approaches. PM BoJo is up against labor leader Jeremy Corbyn. So for now, BREXIT has been moved to the back burner as this race gets under way. Remember, the EU granted the UK an extension over BREXIT until Jan. 31, 2020.
US futures are surging ahead (again) as investors also get to dissect and digest Wilbur’s latest trade comments.
Dow futures are up 133 points, S&Ps are ahead by 15 points, The Nasdaq is surging by 51 points, and the Russel is adding 9 points.
So as you can already see, the move back to Trade is beginning to come front and center again as the earnings season comes to a close. Makes sense. As of now, this issue that has been causing so much of the conversation this year. If we are closer to a partial deal that also allows US companies to do business with Huawei, that’s clearly another positive. Talk of the December tariff hikes is sure to be next. Will Trump impose them as scheduled? Or, will he announce that those tariffs will be delayed or better yet cancelled? And you can be sure that if that happens, we’ll see S&P 3100 in a flash. As it is, we are only 1% away from S&P 3100 as of Friday’s close at 3,066. If futures hold their advances thru the opening, we’ll see S&P 3,080 this morning…
Again, as I noted last week, once we broke out of the S&P at 3,025, there was nothing to hold us back. To find where the next level of resistance would be, you needed to draw a trend line. When you did, I pointed out that that trend line suggested we wouldn’t hit resistance until 3,125!
The news continues to be good from an economic perspective. The impeachment drama, while alive and well, is still drama that will not price stocks in the long term but will provide plenty of entertainment for the masses.
Oil. The Saudi’s officially announced the launch of the Saudi Aramco IPO, but provided little in the way of details. Oil is up 11 cents this morning as all of the US/China trade talk is fueling excitement. That excitement is causing investors to assume that any deal between the two countries will cause demand to rise. But let’s not think its straight up from here. The oil market is well supplied outside of OPEC and Russia. Supply and production from the US, Brazil, Canada, and the North Sea will keep it all in balance no matter how much OPEC decides to cut, just sayin’. How much more are they really going to cut? Since January, they have cut output by 1.2 million barrels/day and where has oil gone? Nowhere.
Take good care.
Pureed Potato/Escarole Soup
So here is another soup recipe in case you are still undecided about what to serve first for Thanksgiving dinner. This one is a pureed potato/escarole soup – thick and rich – it makes for a perfect starter dish.
This soup is topped with fresh mozzarella, toasted pine nuts and sweet raisins. Come on now, how good does this sound?
For this you need: fresh mozzarella cut into chunks, pine nuts, olive oil, chopped onion, Yukon gold potatoes, peeled and coarsely grated, water (or veggie stock), fresh escarole roughly chopped, s&p, golden raisins, soaked in hot water for 5 minutes then drained.
In a large pot, heat oil over medium-high heat. Add onion, reduce heat to med and cook, uncovered, stirring occasionally for about 10 mins… Next add potatoes and cook, stirring occasionally, about 5 minutes more. Now add in the escarole and season with s&p.
Continue cooking, covered, stirring occasionally, until leaves are wilted and tender, about 10 minutes more; add 1 ½ cups water (or veggie stock) and bring to a simmer. Transfer contents of pan to a blender or food processor and purée until smooth; season with salt to taste.
When serving – add chunks of the fresh mozzarella, some toasted pine nuts and sweet raisins… you can drizzle a bit more of the olive oil if you prefer…