Daily Market Notes: 5-10-2021

In another astounding session on Friday, the various stock index futures were trading higher before the 8:30am release of the April jobs report. When it was released showing only 266,000 positions added against the universal prediction for around one million, which made this the largest “miss” ever and an additional net reduction of 78,000 for the prior two months, the assumption was now that the economy is not as strong as previously assumed.

The immediate reaction was a very sharp decline in the 10-year Note yield, which plunged quickly to as low as 1.49%, a drop of around .10% from where it had been trading just before the release of the report.

This led to a complete reversal in the various stock index futures, which had the Dow indication now fall to negative 60 points and the Nasdaq futures jump to almost 200 points higher on the assumption that the Dow, which is the most economically sensitive index, would decline on the supposedly “slower” economy. On the other hand, the Nasdaq, which contains those growth stocks which are the least dependent on the economy for further gains, was now the place to be for gains for a change, after four straight lower days.

But then the 10-year Note yield reversed back to the upside once again to around unchanged at 1.58% which led to the Dow ending the day up by 229 points to a new record high at 34,777 led by advances in BA, CAT, DIS, GS and NKE. It was the fifth straight advance for this index and the third record close in a row.

The S&P also ended at its best ever level with a 30 point advance to 4222 and this was now its eighth advance out of the last 10 weeks. And then the Nasdaq finally gained by 119 to 13,752 but ended lower for the third straight week, as AMZN and FB were down for the day and the week.

The Russell 2000 Index of small stocks had a good day with a 30 point advance to 2271 while the VIX really took it on the chin with a decline down to 16.69, which does not make that huge 150,000 option position of the buy the July 25 call and sell the 40 calls against it look so good for the time being, although there are still several weeks left for the market to really sell off which would make that position potentially profitable.

Investors said that they still expect the economy to strengthen mightily as coronavirus vaccinations roll out. The weak jobs number also bolsters the case for the Federal Reserve to keep interest rates low in hopes of boosting the jobs market.

Low rates have been a huge reason for the stock market’s recovery from its pandemic low in March 2020. One of the market’s biggest fears in recent months has been that a supercharged economy could lead to higher, persistent inflation and force the Federal Reserve to raise rates. But the central bank has been holding short-term rates at a record low for the time being and buying $120 billion in bonds every month.

After Friday morning’s jobs report, investors pared back bets that the Federal Reserve will raise rates soon. Now they see just a 7% chance of an increase in the federal funds rate by the end of the year, down from the 15% probability they were seeing a month ago.

While the sharp slowdown in hiring could calm inflation fears, one measure in the jobs report also showed that wages rose more than economists expected last month to a gain of 0.7% as the temporary shortage of workers forces some companies to have to pay more to get them to return. In addition, the unemployment rate rose a bit up to 6.1% but this was strictly a function of around 400,000 workers returning to the labor force.

China reported its trade with the United States and the rest of the world surged by double digits in April as consumer demand recovered, but growth appeared to be slowing.

Gold had its best week in eight months with a rise to $1,839 as this item had declined to a low of $1,676 when yields reached their highs for the 10-year Note several weeks ago at 1.76% and have since eased back down since then.

This week sees more earnings as the reporting season for the first-quarter starts to wind down and the lineup is as follows, among others: today – DUK, SPG higher and MAR, TSN lower; tonight – NUAN, OXY, NVAC, SPCE; Tuesday – EA, PLTR, LMND, CHK, FUBO and HAIN; Wednesday – TM, BMBL; Thursday – BABA, ABNB, DASH, YETI, COIN, BLNK and Dow component DIS; Friday – HMC.

Economic reports will have: Tuesday – JOLTS job opening survey for March; Wednesday – April C.P.I.; Thursday – April P.P.I.; Friday – April retail sales, April industrial production and capacity utilization, mid-month May U. of Michigan Consumer Sentiment Survey.

Donald M. Selkin

Chief Market Strategist

 

Disclosures:

Don Selkin is the Chief Market Strategist at Newbridge Securities Corporation, member FINRA/SIPC and provides the Fair Value analysis for CNBC each morning. The commentary provided in this Market Letter is intended to provide our current or potential customers with timely market analysis and should not be considered a research report. This Market Letter may contain, and is limited to: Discussions of broad based indices; Commentaries on economic, political or market conditions; Technical analysis concerning the demand and supply for a sector, index or industry based in trading volume and price; Statistical summaries of multiple companies’ financial data, including listings of current ratings; and, recommendations regarding increasing or decreasing holdings in particular industries or securities. This Market Letter does not make a financial or investment recommendation or otherwise promotes a product or service of the firm. This Market Letter contains only news, facts, and commentary on information previously reported from a news source believed to be accurate and reliable by the author. These news sources include the following: {Bloomberg Financial, Reuters, and Associated Press}. It is possible that at any given point in time, the author, Newbridge Securities, or one or more of its employees or registered individuals associated with Newbridge Securities, may hold a position, either long, or short, as well as options, bonds or other instruments in the companies mentioned in this report.