Jobs Jobs Jobs!!
Equities start the day higher on jobs jobs jobs!! Who wants two recaps in a row? This guy. The fine people from ADP, who reside in Roseland New Jersey, home of the 95 minute NYC commute (just spitballing here it’s probably higher), released their latest employment change and it came in at 298k. Booom, what a screamer, all the USA does is win baby. That’s the most hires in 3 years led by a surge in construction and manufacturing, otherwise known as “goods producing industries”, which showed a gain of 106k hard hat and hammer nailing peeps. That’s a record going back to 2002 in case you were wondering. Hey, let’s get real for a second, what do you think is the biggest risk to the market right now? Auto Sales? Home Prices? Rates? A random tweet from the Big guy? Nope, none of those, it’s a boom….an unsustainable boom. Global growth has picked up dramatically, every region of the world is showing improving data right now. Europe looks like they finally turned a corner and Asia is always ready to rock and roll. So what’s the bigger risk? A random recession that comes out of nowhere because we haven’t had one in a while or a continued surge that eventually gets euphoric, sucks everyone in, and creates the cycle top? Riddle me that Batman. Oh but the market is expensive Mike….waaahhh…CAPE and Forward P/E….waaahhh. Stop it. You know what really sucks as a sell signal? Valuation. Yes the market is expensive, yes your expectations for future returns should probably be lower, but using “the market is expensive” as a bail out mechanism would’ve kept you out of so many past bull markets that people would be firing you right and left. We need to start talking about the boom, and as odd as this sounds how the boom may be the thing that eventually marks the top. I mean have you even seen what sectors are leading right now? Fins, Industrials, Tech. Does that sound late cycle to you?
After the open we got a bit of a pop but most of the morning was a nonsense sideways grind. My boy Tepper was the tube this morning and still seemed like he had an appetite for equities. Take a look thru his comments here and watch a few of those videos. . Retail!!! Have we talked Retail in a while? Yes? Well here comes some more. URBN fell 2.5% and the CEO is out talking all kinds of bubbles bursting. “The U.S. market is oversaturated with retail space and far too much of that space is occupied by stores selling apparel,” he said. “Retail square feet per capita in the United States is more than six times that of Europe or Japan. And this doesn’t count digital commerce.” Thanks AMZN. EXPR took the elevator down -10% to new all-time lows and UAA still hasn’t found a bottom as it lost another 2%. However most of today’s pain was in the Energy space as Crude fell to the all impt $50 level after a really terrible inventory number. Of all the things we don’t want to see Energy falling back into the gutter has to be right next to a White House swimsuit competition. Winners were PPG, TRIP, LEN, ADSK, and HRB which ripped 14%. HRB? Are you kidding me…is it really that easy? “Oh hey it’s tax season, maybe people are walking into their local H&R Block and doing their taxes, buy me some stock”. Efficient markets people. Sigh. By lunch the market was going nowhere but oil was falling faster than ESPN subscribers.
The rest of the day was more downside caused by everyone trading Energy. I’m going to blame my energy trader and all the rest on them on the Street because they stepped on my big “we might be headed for a boom” theory. Though, to be fair, this 3 days selloff has removed a grand total of 1.5% from the market. Yep, the Great Correction of March 2017 sure is scary. Wait, no it isn’t, this might be the least scared I’ve ever seen sellers. Look at the VIX, it hasn’t touched 12 even in the face of a 3 day selloff. Anyway, if my thoughts about global growth are correct (I hope they are) we are going to have to see more demand for oil and days like today probably can’t happen all that much (Crude down 5%). By the way, if you didn’t re-fi your mortgage in the past few years the regret is about to get real. The kind of regret Jake Lloyd has for starring in Episode 1 and Steven Speilberg has for making Indiana Jones and the Kingdom of the stupid Lost Crystal. Final Score: Dow -33bps, S&P500 -23bps, Nasdaq +6bps, Rus2k -64bps.
Volume was high. Our desk was better to sell. Buying in Tech and Industrials. Selling in Financials and Retail. Shorting in Food. News Highlights:
- Succinct Summation of the Day’s Events: ADP Jobs report was bigly good but people are dumping oil and everything energy related.
- The best predictor of inflation is….inflation: As the chart shows, inflation typically sticks pretty close to its recent trend. In fact, once we account for that trend, neither labor market slack nor expectations help forecast inflation
- 100% chance of a hike people…100% for March. Should we be worried about that? “Which begs the question: is a sharp move higher in the Fed Funds rate a reliable warning sign of an imminent collapse? Not exactly. Going back to 1954, the largest (top decile) moves higher in the Fed Funds rate over a 1 to 5 year period were all followed by positive returns on average over the subsequent 1 to 5 years. It is true that these returns were typically below average in the 1-3 year forward time frame, and certainly below the periods following times when rates were moving lower, but they were still positive”.
- Everything I love about London right here.
- These MIT people are next level genius. Bet they got higher SAT math scores than I did. I hate them.
- Nope nope nope nope nope nope
- RIP the Azure Window in Malta. Cross that one off your bucket list.
- 10 Cool Things on AMZN. I want #6.
We’ll end tonight with something I want to try this summer. I mean I don’t own a boat, people who own boats like setting money on fire, but I’d like to attempt this with my next door neighbor.