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Things you need to know.

  • NFP reports suggests a ‘goldilocks recovery.’
  • 10 yr. treasuries fall again – giving more fuel to equities.
  • Dow, S&P and Nasdaq all notch new closing highs
  • OPEC+ remains in turmoil – no production increases on the horizon – Oil surges up and thru $76/barrel.
  • REvil – launches a global supply chain ransomware attack.
  • Try the Roast Pork Loin w/Peaches and Honey.

So, the gov’t comes out and reports that job creation was better than expected (no surprise) but that (overall) wages did not surge higher than expected (but there are pockets of concern….)  and that set the ball in motion…. futures which had been hovering around the unchanged line, turned decidedly higher and we were off!  Suddenly it is the ‘goldilocks recovery’ – not to hot and not too cold, but just perfect….and that was all that the algo’s and traders needed to hear, and the rest is history….  The bell rang at 9:30 and it was off to the races…by the end of the day the Dow, S&P and Nasdaq all closed out the week at NEW records as the summer rally goes into overdrive…..the Dow adding 152 pts or 0.4%, the S&P up 32 pts or 0.75%, the Nasdaq up 116 pts or 0.8% while both the Russell and Transports ended the day LOWER…..which is a bit curious considering all the talk….the Russell losing 23 pts or 1% while the Transports gave back 41 pts or 0.3%.  (Now that does make some sense – consider both the Russell and Transports have so outperformed the others…so as investors look to re-allocate monies – what do they do?  They take a bit from some of the outperformers and redeploy into those sectors that are now seen as the favorites going forward….)

Now the gains in the broader market suggest that the recovery is exactly what Jay Powell has been telling us (that economic growth will accelerate but that any inflation threat is only transitory) and the idea that there is any kind of tightening ahead appears to be only a rumor…. Why?  Because the stronger jobs number does suggest a continued recovery, but the uptick in unemployment suggests that there is still slack in the system to which I would say – maybe we need to rethink the extra benefits so that unemployed people have a reason to go out and get one of the 9 million + jobs that are currently available….I mean what we are seeing is that the 23 states that have stopped paying the extra benefits have actually seen their unemployment rates drop, funny how that works, no?

So, what are those pockets of concern?  Leisure and hospitality wages showed a 2.3% m/m increase in average hourly earnings;  2% greater than the broader reading of +0.3%……and if employers continue to pay UP for workers it could then ignite a surge in average hourly earnings across other sectors which will cause an inflation spiral in wages…..and that will set the whole thing in motion… you have to ask yourself….is that one data point the ‘canary in the coal mine’?  Just food for thought….but as of Friday – investors, traders and algo’s put any inflation concerns on the back burner and went all in…Growth names taking the lead…TECH – XLK up 1.3%, Healthcare – XLV up 0.9%, Consumer Discretionary up 0.88%, Communications – XLC up 0.7% and the Growth ETF – SPYG is attempting to take over the role of the Value ETF – SPYV – gaining 1.2% vs. 0.2% on the day….Now value is still in the lead at +16% ytd vs. 15.7% (but it remains in the ‘margin of error’ now…..)….so the fight continues….and with more and more talk of a ‘dovish’ FED – then watch as growth rips up and through…..but the minute they start to sound ‘hawkish’ and raise those concerns again – watch how fast the roles reverse.  And in another turn of events…. Disruptive Tech – ARKK – which has surged recently – up 32% off the May lows did see some selling pressure as the trader types rang the cash register and reallocated some of the monies into those sectors identified above……. It is all in a day’s work….

This week does not bring a lot of macro data points – but it does bring us the latest FOMC minutes, and we must ask the obvious question – Will the FED minutes catch us off guard?  Traders and investors will be watching and listening intently to whether the hawkish comments made by Bullard, Bostic and a couple of others match up with the minutes of the meeting or with they completely contradict them.   Recall what happened in April…..when Jay Powell told us that they were NOT talking about talking about tapering, yet when the minutes were made public it was a different story….some of the FOMC members did in fact say that it would be appropriate to begin discussing tapering and interest rates if the economy continues to push ahead at breakneck speed….and do you recall how investors/traders and algo’s reacted?  So, sit tight and strap in…. because anything that veers off what the markets expect will open the door to a new round of volatility…. which will provide both angst and opportunity….so buckle up!

10 yr. Treasuries ended the day yielding 1.42% which is even lower than the day before – suggesting that the economic environment and robust recovery coupled with a still compassionate and accommodative FED is creating an environment that continues to fully support equities (as well as a number of other assets),  The VIX ended at 15.87 (complacent), the DXY index is trading at 92.388, Gold bounced off the levels I identified last week ($1760 ish) and is now trading back above $1,800.

Oil – is surging higher because OPEC+ cannot agree on baseline production levels for its members and US producers who had shut down wells during the covid crisis have apparently been slow to bring them back online…. which is curious to me since oil is up more than 120% from the depths of despair…. WTI (West Texas Intermediate) is now trading at $76.33/barrel.  As you’ve new heard – the UAE (United Arab Emirates) has drawn a line in the sand and refuses to participate in increased production unless and until they increase their ‘baseline’ production levels going forward.  And if you change the levels for the UAE, then you have to consider changes for Iraq and other OPEC members who are feeling slighted and so there is no change in production, no additional barrels coming to the market and so – as you might imagine – prices are going higher because global demand is alive and well…so expect to see $100 oil sooner rather than later which means parts of the US will be paying $5/gal for gas.  Joey – is ‘encouraging’ OPEC to play nice in the sandbox – not very successful.

Over the weekend – there was word of another ransomware attack that is believed to have infected ‘hundreds of organizations worldwide and tens of thousands of computers…’ –  The story goes onto say:

“The group known as REvil has focused its attention on Kaseya VSA software used by large companies and technology service providers to manage and distribute software updates to systems on computer networks…. the latest attack appears to be the largest ever.  The incident may have infected as many as 40,000 computers worldwide…” in what is being identified as a ‘supply chain attack’ –

Cybersecurity companies around the globe working hard to address this issue…ReVil asking for $70 million in bitcoin as ransom…. experts are suggesting that the ransom could be negotiated lower to something like $20 million (that is good) and Joey, telling Vlad – that ‘this isn’t fair’…and so it goes…

From my own perspective – I wonder what will happen when they attack the global financial system…. because, you know it is coming…. it is just a matter of time….

This morning – US futures are hovering around the unchanged line…. Dow futures down 2, S&P’s down 2, Nasdaq down 8 and Russell unchanged.  Eco data today is all about Services PMI.  Markit US Services PMI expected to come in at 64.8, while ISM Services PMI is expected to be 63.5 – both very strong numbers so the surprise will be if they stronger or weaker than the expectation…. weaker numbers will suggest a slowing of the economy – (NOT HAPPPENING) while a stronger number will suggest that a roaring economy and since we already saw a spike in wages in the leisure/hospitality industry (Friday’s NFP report) a stronger services PMI will surely put even more pressure on employers to raise wages again…and there we go…the whole inflation story gets moved to the front burner…. Sit tight….

European markets are a bit lower…. higher oil prices throwing cold water on investor psyche…. German industrial orders fell by 3.7% in May – vs. the expected gain of 1% and the German ZEW economic sentiment indicator also hit its lowest level since January 2021 – falling 16 pts to 63.3 – well below the estimate of 75.2.  Eurozone retail sales though, rose by 4.6%.  All markets lower by about 0.24%.

Bitcoin is trading at $34,000, Ethereum is trading at $2,300 and doggey coin is trading at .24 cts.

The S&P closed at 4,352 – advancing even deeper into the next century mark…. expect some consolidation as we move into earnings season which begins in earnest next week.
The current S&P channel remains 4226/4406….

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You can follow me on Twitter – @kennypolcari

Take good care,

Chief Market Strategist, Consultant

Roast Pork Loin w/Peaches and Honey

This is a simple dish and presents beautifully on a platter.

For this you need:  1 3lb boneless pork loin, canned peaches, honey, fresh lemon juice, brown sugar, s&p.

Preheat the oven to 400 degrees.

Season the loin with s&p – nothing more…massage the s&p into the loin and then place the loin in a baking dish – and place in the oven – uncovered and let it roast for 30 mins….

Now – in a pan – add the canned peaches with the juice, the juice of 2 fresh lemons, 2 tblsp of honey and ½ c of brown sugar.  Bring to a boil and then crush the peaches with the back of a spoon – cook for maybe 4 – 5 mins…then remove and let cool.

After 30 mins – add the peaches to the baking dish – pouring the peaches over the whole loin.  Return to the oven and cook for 30 more mins…. You can turn the loin if you want to – when done – remove – slice to make sure its cooked and then let rest for 5 mins.  Slice and then place on a serving platter – spoon the peaches and juice over the top and serve with roasted cauliflower and a large mixed salad.

Buon Appetito