Things you need to know
- Stocks churn – feeling a bit tired
- Growth outperforming Value in what feels like no change in FED policy
- ADP comes in at nearly 50% of the estimate – what will NFP say?
- OPEC sticks to the production increase – crude falls but then rises as demand remains strong
- Try https://getheadstrong.org/
Stocks wavered but then resumed their push higher – albeit at a slower pace…. the Nasdaq ended the day at another new high…. the ‘tech’ index rose 50 pts or 0.3% to end the day at 15,309! The S&P, Russell and Transports also gained in value adding 2 pts, 13 pts and 90 pts respectively….it was only the Dow that gave back anything…. falling 48 pts or 0.15%.
Utilities were the outperformers yesterday…. the XLU rising 1.3%, and Real Estate – XLRE rising 1.7% – in what is clearly a defensive play…. while Energy – XLE got hammered a bit falling 1.4% after OPEC told us that they are sticking to their plan to boost production. The growth trade – SPYG rising 0.25% while the value trade – SPYV fell 0.15%…and the Tech Disruptors – ARKK – had a good day as well – rising 1.4%. The 10 yr treasury ending the day yielding 1.28% as money moves into the treasury market and equity indexes move higher.
At 8:30 am yesterday – we got the ADP employment report and while it called for an increase of 680k new jobs for the month of August – what we got was nearly 40% of that…..ADP reported that we created only 374k new jobs….and that now calls into question what the gov’t will report on Friday – never mind what the FED may glean from this report…..…Now look, the ADP organization does not have the best reputation for tracking the trends of job creation at all….in fact they are very inconsistent and so therefore many immediately discounted the ‘miss’ as insignificant………so don’t’ read too much into this….Friday’s BLS (Bureau of Labor Statistics) Non-Farm Payroll Report is much more important for investors and the markets….and that economic data point is calling for 725k new jobs to be created – that is also the one that Jay Powell and the FED will be watching…..Now if that comes in at 50% of the estimate then watch what Jay says next…..
In addition to reporting new jobs – Friday’s report also quotes Unemployment – which is expected to drop to 5.2% down from 5.4%, Avg hourly earnings m/m +0.3%, and y/y of +4% along with the Underemployment rate that is expected to break the 9% handle….and this will be much more important for investors to analyze and digest. So, sit tight….
On the contra side yesterday -we got Manufacturing PMI (Purchasing Managers Index) and that remains strong…. coming in at 59.9 vs. the estimate of 58.5. So, again – the data doesn’t really say anything that was earth shattering at all…investors remain much more optimistic that stocks can only go up….and that my friends are exactly the worry. Every time stocks try to back off – you can hear the roar of the Buy the Dip crowd across the different social media sites – Twitter, FB, Reddit – wherever…. and that has prevented stocks from really correcting….and it works until it doesn’t…. but that’s not now….
While it is only September 2nd – much of this month’s action will depend on what the speculation is around what Jay Powell will say on September 22nd and then what in fact he does say on September 22nd…..You see – expect to hear more from the FED talking heads over the next 2 weeks and then nothing as we move into the ‘quiet period’ – now it will be the voting members that will be prevented from talking out loud, but the non-voting members are not bound by any such agreement because they don’t have a vote….so while they have an opinion and they appear across the media – they don’t have a vote….so just understand that. They may offer insight and help you understand the environment, but they don’t have a vote.
Now – what we have seen is that retail investors are plowing money into stocks – JPM estimates that we saw $16 billion come in in July and another $13 billion in August – as the fear of missing out mentality continues to drive investor psyche. We’ve talked about this, right? All this money has caused valuations to become stretched and while many analysts appear to be ‘ok’ with it there are others that continue to caution investors to be more methodical and patient. I for one – continue to tell you to stick to the plan, but just make sure that new money isn’t following the crowd – that you are allocating to sectors that are undervalued relative to the broader market and relative to your own portfolio….and the last thing I would be doing is chasing the outperformers right now…because when the tone does turn – it will be those outperformers that are the first to come under pressure…..as investors look to raise quick cash.
There are issues on the horizon that are sure to create some angst in the weeks ahead…. – debt ceiling, infrastructure negotiations, tax implications, new financial regulations, tech regulations and the elephant in the room – FED monetary policy decisions…and the implications of what that means for investors and for future interest rate moves…..a concern that Jay has tried very hard to soothe -telling us that the move to taper and the move to raise interest rates are MUTUALLY EXCLUSIVE – they are not tied together at all…and that is what he is hoping will keep markets calm and not ignite a temper tantrum at a time of seasonal volatility.
Eco data today includes the usual suspects and then a few more…. Initial Jobless Claims of 345k, Cont. Claims of 2.8 mil (both would be good numbers), Factory orders of +0.3%, Ex transportation of +0.5%, Durable Goods of -0.1%, Ex transportation of +0.7%…and Capital Good Ordered and Capital Goods Shipped.
US futures are – yup – up again…. Dow +62 pts, S&P’s +8 pts, the Nasdaq +30 pts, and the Russell up 5 pts. As noted, – investors are now focused intently on tomorrow’s eco data and what if anything that may do to shape the path of monetary policy…. policy that has us buying $120 billion of treasury and mortgage-backed securities every month….
While the delta variant is still a concern for the country – there is evidence that it is peaking and maybe the worst is over….and I said maybe…I did not say it is….In any event – it is quite obvious that this variant is not slowing investor appetite at all….remember we are at record highs, not record lows…the S&P and the other indexes continued to climb even as the variant ravaged the country again….raising all kinds of concerns for some, while others pushed it to the back burner. In any event – anyone that is invested in the markets – either through a company 401K, or an IRA or any other savings/investment vehicle has nothing to complain about at all…. they have seen their investments outperform again.
In Europe – markets are treading water….as they too await the all-important US non-farm payroll report and what that may mean for US policy and then be default European policy……Recall – ECB President Christine Lagarde has made it very clear that she will move after the FED moves…. So, what the FED says is very important to European investors…. At 6:30 am – European markets are hovering around the flat line…. France, Germany, and Italy just a bit higher while the UK, and Spain are negative….
Gold has broken up and through resistance at $1817 and is now trading at $1819 in what feels like a possible push towards $1900….and that may come tomorrow after we get the NFP report.
Oil is up 25 cts at $68.85/barrel….as the trader types digest the latest information out of OPEC and the restart of US refineries along the gulf coast. Energy companies are scrambling to restart the rigs leaving 1.4 million barrels per day of oil offline. In addition – the EIA (Energy Information Administration) told us that crude inventories dropped by 7.2 mill barrels while refined oil rose to a record –
Bitcoin is trading at $49,900 and Ethereum is trading at $3,750.
The S&P ended the day at 4524…after trading again in a very tight range…. In what feels like a bit of exhaustion…. a look at the chart continues to show that the index keeps hugging the trendline as it claws its way higher leaving those calling for a pullback scratching their heads.
Stick to the plan – keep putting some of allocated money to work in the underrepresented sectors while remaining aware that the coming correction will provide a greater opportunity to put money to work. I would not be chasing the leaders of the pack at all – you are already in them, so you are participating…. don’t stress.
Remember you can text the word INVEST to 21000 on your cell phone to get my digital business card. Feel free to download it and send me off an email or text. Happy to engage and talk markets, planning, thoughts, concerns, and ideas.
You can follow me on Twitter @kennypolcari and on IG @kennyp1961.
You can also find my daily videos on my YouTube channel – Kennypolcarimedia – My URL address here: https://www.youtube.com/user/kennypolcarimedia
Take Good Care
Chief Market Strategist, Consultant
The Headstrong Project
Instead of a recipe today – I want you to consider joining me in Washington DC on Wednesday, November 3rd – as we host our annual Headstrong Project Gala event. For those of you that are unfamiliar – GETHEADSTRONG.ORG is a veteran’s organization – that I am on the advisory board of – that treats and supports returning combat veterans that suffer from the hidden wounds of war – the ones you can’t see…. what is known as PTS. (Post-Traumatic Stress)
Considering everything that has happened over the past 20 yrs. and the past 20 days – I ask that you please consider supporting this incredible organization that is now in its 12th year in 12 states and more than 25 cities treating more than 1500 veterans at ZERO cost to any of them for as long as they need. There is no time constraint on your mental health. To learn more – click here
Feel free to reach out to me directly if I can offer any assistance. God Bless our Veterans, God Bless America. Thank you for your consideration.