A Stunning Reversal

Would you like to ride in my beautiful balloon? Would you like to ride in my beautiful balloon? We could float among the stars together, you and I, for we can fly, we can fly, Up, up and away, My beautiful, my beautiful balloon, … (the 5th Dimension – 1967)

A classic song from last century that speaks to where we are today… stocks ripped higher on Friday after the economic data stunned everyone… the monthly Non-Farm Payroll report – one of the biggest data points we watch every month – and more so now that they brought the country to a standstill – completely caught everyone by surprise… the expectation of another 7.5 mil job losses was met with a GAIN of 2.5 mil jobs… or a 9 mil job swing in the estimate. Unemployment, which was estimated to surge to 20%, actually came in at 13%… a stunning reversal… and one that left Wall Street traders, analysts and algos speechless… and while the market has been telling us that there was a surprise along the way – nobody was prepared for the surprise we got… Yes, we have been making progress controlling the coronavirus, Yes, we have flattened the curve and Yes, we have begun the process of re-opening the country and then we get this report… the Dow at one point surging more than 1000 pts ended the day up 829 pts or 3.1%, the S&P added 81 pts or 2.61%, the Nasdaq leapt by 198 pts or 2.06% and the Russell rallied 55 pts or 3.8%.

Not so fast, partner… while the data appears to be exciting – let’s just think about this for a moment….the multi-trillion dollar stimulus programs that the administration launched when they shut us down is about to run out – unless of course they continue to extend it, the second wave that everyone is talking about could still hit us – causing devastation all over again and we haven’t resolved the issue – there still is no vaccine nor a specific treatment plan to protect us… and while I am not trying to be a party pooper – let’s keep it real… I mean there is still danger lurking out there, so the last thing you should do is just jump in and spend money like a drunken sailor – stick to the plan…

Then you ask – a 9 million swing in the number? How did all these Ivy league guys miss this? I mean a miss in the estimate of maybe 2 or 3 million is one thing, but a 9 million job miss? Was someone not doing their homework? And the jobs added were not new jobs – at all, they were 2.5 mil jobs of furloughed workers…..Service jobs that were the first to be eliminated when the pandemic struck were also the first to re-hire the people let go – restaurant workers, construction workers, retailers, healthcare and manufacturing – We have to get thru the 40 million jobs that were lost first before we consider what adding new jobs really looks like… In the end – as my good friend Ron Insana points out – The real unemployment rate is actually 16.3% vs. the 13% that was reported – due to worker misclassification (it will be interesting to see if the gov’t corrects it), 1 million workers have permanently lost their jobs and 40 million people are still collecting unemployment insurance benefits – so while the headline report was significantly better we still have a long way to go… and while the market surged on Friday – it has been surging for 2 months now – doing exactly what it does – it looks forward and trades at where it thinks the economy will be 4 – 6 months from now… so if that’s the case – it feels like it’s all good… either way – you can expect that this report will be debated all week…

Now while this does add credibility to the outlook – the proof is in the pudding, as they say… and if this report is the first in a long line of what is now expected to be more good reports then there are better days ahead.  In the end this report – at least for now – does validate the rally off the lows of March – the question is, have we rallied to much based on where the economy is, where it is going and is the market now being a bit generous with the outlook?

As of Friday’s close – the Nasdaq is now up 9.4% on the year, with the S&P only off 1%, the Dow off 5% and the Russell still off 9% and we are still in quarantine, locked in place… with 40 million people still out of work and so many more working remotely leaving office towers and big cities abandoned… just sayin…

Over the weekend – there was all kinds of talk about what this report meant for the country and the US economy and as other countries also begin to wake up what this means for the global economy. Stocks in Asia joined the rally overnight – with Japan adding 1.3%, China adding 0.52% and Hong Kong up 0.03% – Australia closed for a holiday. Asian investors are all in – as the data for Friday is consistent with what much of the prior data reports have been whispering… and while we all think it is positive – it might be a bit early to bet the ranch… Eco data in China on Sunday – showed that China’s exports fell in May – as the effects of the virus continue to be felt… but let’s not be sad – China still reported a record trade surplus as May imports also fell.

European markets are flat to lower this morning as they digest the recent news – and don’t forget – European markets also surged on Friday – ending their day with 2 & 3 percentage points gains across the region. The tone this morning is once again cautious as the focus returns on what the reality of the recovery will look like and as the UK imposes a 14 day quarantine on anyone arriving into the country beginning today.  This as other European countries are relaxing travel restrictions is causing angst across the travel and leisure stocks. There is no significant eco data to be released but ECB President Christine Legarde is due to attend a European Parliament meeting today… nothing new is expected, but the fact that she is there speaks volumes about what the ECB might need to consider in the weeks ahead as the European economy begins to rev its engines. As of 6:30 the FTSE +0.2%, CAC 40 -0.53%, DAX -0.62%, EUROSTOXX -0.64%, SPAIN +0.64% and ITALY +0.33%.

US futures are pointing higher once again… with Dow futures up 152 pts, S&P’s are up 12 pts, the Nasdaq is up by 5 pts and the Russell is ahead by 19 pts as the momentum continues and excitement builds. On Friday – Energy – XLE surged 7%, Industrials – XLI added 3.6%, Banks – XLF +3.7%, Tech – XLK +2.6%, Real Estate – IYR + 3.6% all continue to lead…

Look – Friday’s NFP report reverses only a tiny fraction of what we’ve lost – but considering that they had prepared us for another devastating round of job losses – the report is still being met with optimism and hopes that coming macro data points will only confirm what we learned on Friday – economic activity is returning – hopefully even faster and stronger than many street analysts and strategists would have you believe.  There are no economic data events today – but later in the week – we will get Wholesale inventories, CPI, PPI, and the release of the FOMC (Federal Open Market Committee) minutes… and while there isn’t anything expected to be new – the fact is that they will be released and analysts will comb through them looking for anything that might offer insight into what the collective minds are thinking.

Today, NYC begins the process of re-opening, slowly but they are re-opening… over the weekend – the city did not report one death from corona – and nor have we seen a spike in new cases from places that were called out over the Memorial Day weekend… Beaches, parks, and anywhere else that thousands gathered… so the theme today is all about tearing apart Friday’s job report… Either way – it is what it is… what is really funny now – is to listen to how everyone re-organizes their thoughts to reflect the surprising news – CNBC is featuring none other than the famed investor – Stanley Druckenmiller (or maybe Drunkenmiller)  – the guy that told us all about the coming collapse 2 weeks ago – It will be very interesting to hear what he has to say today… What tune will he be singing now?  Will he attempt to explain how his ‘end of the world’ scenarios weren’t really that bad?  That he knew this all along as he was screaming ‘fire’ in the crowded movie theater? Stay tuned… it’s about to begin…

Oil is once again surging… with WTI (West Texas Intermediate) trading at $39.80 after trading as high as $40.44!  Crude producers – think OPEC + –  extended their record production cuts thru July… not completely what they all wanted, but it is better than nothing and this is what caused oil to back off from the highs… and remember – as the world awakens – expect demand to surge… which is now expected to lead to a ‘supply deficit’ by October… Supply deficit is defined as ‘not enough supply to meet demand’ which is in complete contrast to the supply surplus that exists today… We are now solidly in between the trendlines… with the trading range now $37.26/$46. – just as we’ve been discussing for some time now.

S&P closed at 3193 – after trading as high as 3211 – a level that appeared to be unreachable only 2 months ago… The spike up on Friday is continuing today… but the gap from Friday will need to be filled before we get any real push higher… but as of 7 am – it feels like the market wants to erase the losses suffered since the crisis began… My guess is that the S&P will trade to 3225-ish before it stalls out and retests to fill in the gap created on Friday – but if the euphoria continues – we will continue to see a complete disconnect between the market and the economy.  Oh – boy – just wait until the FED changes course…

Take good care,

Kp


Swordfish Steaks

Swordfish Steaks in Lemon, Basil & Mint

This is an easy and delicious summer dish… swordfish steaks are great on the grill and when you present it on a bed of arugula and tomatoes – it is just beautiful.

For this you need:  Swordfish, olive oil, fresh lemon juice, chopped basil, chopped mint, chopped garlic (like 2 cloves), s&p…

Mix together all of the ingredients (except the swordfish) and taste to make sure you got it right… now pour half of the mixture over the steaks and let marinate for 30 mins…

Heat the grill – Now place the steaks on the grill and cook for about 3 mins and then flip (clearly if the steaks are thick – then grill a bit longer).

While the steaks are cooking – prepare the plates with a bed of arugula and sliced – beefsteak tomatoes.  Season with s&p, and a squirt of fresh lemon juice.  (You can add a splash of balsamic if you like).  Now place the grilled swordfish steak on the arugula and serve with your favorite chilled white wine.

Buon Appetito.

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Kenny Polcari

Kenny is the editor of Morning Thoughts and has been with Seven Figure Publishing since 2019.

Kenny is a CNBC exclusive contributor appearing on shows like The Halftime Report, Power Lunch, and Closing Bell. His market commentary has reached audiences across the nation on media outlets such as Bloomberg, Fox, ABC, and more.

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