Friday, June 5, 2020

The Morning Call--Shocking jobs report

The Morning Call


The Market

After a day of see sawing between being plus or minus, the Averages  (26281, 3112) closed mixed on the day (Dow up. S&P down)---not surprising given their increasingly overbought condition.  Both of the indices remain in very short term uptrends.   Having successfully challenged its 100 DMA, the DJIA finished right on its 200 DMA---for stocks to maintain upward momentum, it needs to catch up to the S&P which is already well above its 200 DMA.  The one negative is those huge 5/18 gap opens that remain unfilled but which, at the moment, appear irrelevant.  My assumption continues to be that equity prices’ bias is to the upside.

GLD bounced hard off the upper boundary of its short term uptrend, leaving its upward trend intact.  Meanwhile, the long bond made a new lower low and ended right on its 100 DMA (now support).  The dollar was down again on volume, remaining in a newly reset very short term downtrend. The deviation of gold from TLT and UUP points to rising inflation fears.  Of course, this is a one day phenomena; so, we need more time to confirm that thesis.

            Thursday in the charts.



            The economy

Yesterday’s numbers were negative.  Weekly jobless claims, Q1 unit labor costs and the April trade balance did not meet expectations while Q1 nonfarm productivity was much better than anticipated.

            The recovery alphabet soup.

            How valid is the Markets optimism for economic recovery?

More fiscal stimulus coming.

Overseas, April EU retail sales, the May EU construction PMI came in above estimates while the May UK construction was below.
            The coronavirus

            Looters, lockdowners and the law.

            Did Sweden’s strategy backfire?

            The Fed

            The Powell bubble.

            Reality repression.

Bottom line.  barring an unexpectedly damaging second wave of the coronavirus, the economy is likely through the worst of the recession.  However, as I continue to note, we still have no idea what the lockdown’s ultimate impact will be on American’s spending, social and work habits. 

And yet, investors are tip toeing through the tulips. To me the only explanation for this total breakdown of the relationship between price and value is QE; and I have no clue when and how this disconnect corrects itself.  Invest accordingly.

The latest from Jeremy Grantham.
The case for buying everything.

            More on valuations.

            Hedge funds brace for second stock market decline.

            Don’t overjudge yourself.

                        This analyst makes a great point:  a major axiom of Wall Street is to not let a trade turn into an investment (i.e. buy a stock for a quick pop, you are wrong and instead of selling immediately, you hold on and watch it go down further).  But what do you do when an investment turns into a trade? (i.e. you buy a stock to hold for the long term and it skyrockets to your price objective almost immediately---like what is happening now with stocks bought in late March that have since appreciated 40-50%.)  I would be a Seller but it is an interesting problem to ponder.
    News on Stocks in Our Portfolios

   This Week’s Data


            May nonfarm payrolls increased 2,509,000 jobs versus and anticipated decline of 8,000,000; the unemployment rate was 13.3% versus projections of 19.8%.


            April Japanese household spending fell 6.2% versus forecasts of -8.7%; its April leading economic indicators came in at 76.2 versus 84.5.

            April German factory orders declined 25.8% versus estimates of -19.7%.

            May UK consumer confidence was reported at -36 versus expectations of -34.


            Commercial versus household bankruptcies in May 2020.

                Median household income in April 2020.

What I am reading today

            Americans can’t agree on what to be outraged about.

            Why patents work.

            Self-diluting euphemisms.

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