Payrolls Good Now We Look Ahead to CPI

Thursday saw a small gap lower at the open (down 0.17% in the SPY, down 0.09% in the DIA, and down 0.53% in the QQQ).  After that open, all three major indices ground sideways to get their bearings for the first 30 minutes of the day.  However, starting at 10 am in the SPY and QQQ as well as 11 am in the DIA, the bulls led a long, slow rally that lasted until 2:30 pm.  From that point, the QQQ and SPY ground sideways in a fairly tight range.  At the same time, DIA did a slow, shallow pullback.  This action gave us a white Bullish Engulfing candle (that bounced up off its T-line) in the SPY, a white-bodied Spinning Top in the DIA, and a Bull Engulfing candle that crossed back up through its T-line in the QQQ.

On the day, seven of the 10 sectors were in the green with the Healthcare (+0.75%) group leading the way higher while Energy (-1.23%) lagged the other sectors.  At the same time, the SPY gained 0.39%, DIA gained 0.02%, and QQQ lost 0.67%.  VXX lost 1.76% to 43.48 and T2122 climbed but remains in the mid-range at 63.69.  10-year bond yields fell slightly again to 3.305% while Oil (WTI) was flat at $80.54 per barrel.  So, on virtual Friday we saw a sideways to very modestly bullish session.  All of this happened on well less-than-average volume in all three major indices.  

In economic news Thursday, the Weekly Initial Jobless Claims came in much higher than expected at 228k (compared to a forecast of 200k but still far below the prior week’s 246k reading).  Then on Friday, March Nonfarm Payrolls increased slightly less than was expected at +236K (compared to a forecast of +239k and far lower than the February reading of +326k). At the same time, March Private Nonfarm Payrolls increased far less than expected at +189k (versus the forecast of +215k and the February value of +266k).  Meanwhile, the March Participation Rate came in a bit above expectation at 62.6% (compared to the forecast and previous reading of 62.5%).  This all resulted in a better-than-expected March Unemployment Rate of 3.5% (versus the forecast and February value of 3.6%).  (Of potential note, Black Unemployment fell to 5%, which is the lowest absolute level since 1972 and the narrowest gap to overall unemployment in over 50 years.)  Finally, March Average Hourly Earnings also increased less than expected at +4.2% annualized (compared to a forecast of +4.3% and growing much slower than the Feb. increase of +4.6%).  The bottom line is that the March Payrolls data came in about as well as the Fed could have hoped.  Participation is up, but job increases are slowing and wage increases are slowing (without either falling off a cliff).  This seems in line with the Fed’s stated path of one more quarter-point rate hike and then stable rates for the rest of the year.  This should be good news for bulls and was followed by an increase in bond yields and the US dollar (which tend to indicate a move to a “risk on” stance).

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In stock news Thursday, Reuters reported that between 2019 and 2022, TSLA employees shared private videos and images recorded by the cameras located in customer cars.  (Many of these videos and images were reportedly highly invasive, showing customers in embarrassing situations and even naked.)  TSLA responded by saying that customer car camera recordings remain anonymous.  However, Reuters reported that several former employees said TSLA internal computer programs can and do routinely identify the locations and owners of the cars doing the recording.  In other TSLA news, the company cut prices again over the weekend (this time by an average of 6%).  This is TSLA’s fifth price cut in 2023.  Elsewhere, WMT announced it has plans to launch a network of electric vehicle charging stations at many US stores by 2030.  This will be in addition to 1,300 charging stations previously announced as part of the WMT partnership with VLKPY (Volkswagen). Meanwhile, Bloomberg reports that BA plans to increase the output of 737 jets to 38 per month by the middle of the year.  (BA currently produces 31 of the 737 planes each month.)   At the same time, HMC announced a recall of 563,000 CRV sport utility vehicles from 2007-2011 model years because rust may cause the frame to detach.  In rumor news, the Wall Street Journal reported that NGG and D both are separately seeking to sell parts of their own natural gas pipeline networks, which combined could be worth $13 billion.  Finally, in black eye news, Reuters reported that LUV CEO Jordan received a 75% compensation increase (mostly from bonus) even though he promised to cut executive bonuses after the 17,000 flight cancellations around Christmas and despite LUV stock falling more than 66% in the year preceding the raise.

In stock legal and regulatory news, the EPA proposed new rules on Thursday that would cause sweeping cuts in vehicle emissions.  The rules will take effect starting in the 2027 model year with the last of the rules phased in by the 2032 model year. Later, HOOD agreed to pay $10.2 million in penalties to several individual states for platform outages in March 2020 as well as for deficient account review and approval processes prior to 2021.  Meanwhile, a day after CMG sued SG for trademark infringement, SG has renamed its newest menu item (formerly known as the “Chipotle Chicken Burrito Bowl”).  Elsewhere, the Treasury Dept. and MSFT reached a settlement over the tech firm’s violations of sanctions and export controls.  MSFT agreed to pay a $3 million to settle 1,300 apparent sanction violations involving Cuba, Iran, Syria, and Russia. (The fine was so small because Treasury said the violations were not egregious and were self-reported.)  At the same time, the US GAO denied LMT’s protest of the Army awarding a $7.1 billion helicopter contract (for a Blackhawk replacement) to TXT.  On Friday, the Financial Times reported that the US Office of the Comptroller of Currency (Treasury Dept.) has scheduled an audit of JPM related to the company’s potential lack of “due diligence” performed as part of the bank’s acquisition of dozens of smaller companies in 2021 and 2022.  This comes after the US Dept. of Justice filed fraud charges against the founder of financial aid company Frank for having defrauded JPM to the tune of $175 million.  Finally, CNBC reported Friday that the Dept. of Labor (OSHA) has again found DG guilty of more than 180 serious workplace violations, including the blocking of fire exits.  However, federal law only allowed OSHA to fine DG $245,544. 

In money flow news, Fed data released Friday showed that bank deposit outflows have stabilized.  Deposits at banks not among the 25 US largest banks were down just $1.1 billion the week ending March 22.  That said, smaller bank deposits are still down $216 billion from their peak in December of 2022.  Over the same period, deposits at the top 25 banks are down $96.2 billion. (Large bank deposits have fallen $519 billion from the high, which was $11.2 trillion dollars in February 2022.)  A different way to look at this situation is that about $350 billion in new money poured into Money Market funds in the four weeks ending April 5.  That took Money Market funds to a record total of $5.25 trillion.  Over that same time, SPY is up 6%, DIA is up 4.77%, and QQQ is up 10.2%.  So, money is flowing out of bank deposits and apparently into both stocks and money market funds at a significant clip.  Big bank earnings reports starting at the end of this week may also give us better insight.

Overnight, Asian markets were mixed but leaned toward the green side.  Shenzhen (-0.80%) was by far the biggest loser on the day. Meanwhile, Thailand (+1.02%) was the biggest winner in the region, followed by South Korea (+0.87%) and Japan (+0.42%).  In Europe, the bourses are closed for holiday on Monday.  In the US, as od 7:30 am, Futures are pointing toward another mixed, flat open.  The DIA implies a +0.08% open, the SPY is implying a -0.07% open, and the QQQ implies a -0.36% open at this hour.  At the same time, 10-year bond yields are up from Thursday’s close to 3.368% and Oil (WTI) also up very slightly to $80.69/barrel.  (For its part, Natural Gas is making a strong move, desperately trying to hang on to the $2 level after a year-long decline.)

The only major economic news events scheduled for Monday is a speech from Fed member Williams (4:15 pm).  The major earnings reports scheduled for the day are limited to GBX before the open.  There are no earnings reports scheduled after the close.

In economic news later this week, on Tuesday, we get the WASDE report, API Crude Oil Stocks Report and hear from two Fed members (Harker and Kashkari).  Then Wednesday, March CPI, EIA Crude Oil Inventories, March Federal Budget Balance, and the FOMC Meeting Minutes are released.  On Thursday, March CPI and Weekly Initial Jobless Claims are reported.  Finally, on Friday, March Retail Sales, March Import/Export Price Indexes, March Industrial Production, Feb. Business Inventories, Michigan Consumer Sentiment. Feb, and Retail Inventories are reported.

In terms of earnings reports later this week, on Tuesday, KMX and ACI report.  Then, on Wednesday, there are no major reports.   Thursday, we hear from, DAL, FAST, INFY, and PGR.  Finally, on Friday, BLK, C, JPM, PNC, UNH, and WFC report..

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In under-the-radar geopolitical news, last week, the Chinese response to Taiwan’s President Tsai meeting with US House Speaker McCarthy included announcing plans Friday to begin stopping and inspecting ships in the Taiwan Strait.  Taiwan’s response was to say “No you won’t” and advised ships and shipping lines to call the Republic of China (Taiwan) Coast Guard or Navy should they be radioed or obstructed by China.  Shortly afterward, China said that its operation was a three-day military drill intended to demonstrate its ability to control the Strait.  (Thus, limiting the escalation.)  For its part, the US Administration has de-escalated the situation by simply saying this Chinese move was another ratcheting up of tensions (the same thing China said before the US officials met the Taiwanese leader). 

So far this morning, GBX beat on both the revenue and earnings lines.  It is worth noting that GBX revenue included a 34% upside surprise.

With that background, at least in the premarket, it appears stocked have pulled back in the last 30 minutes, to give us a very modest but red across-the-board opening bell. QQQ is now retesting its T-Line (8ema), with the SPY and DIA not far above their own T-lines. It looks as if the consolidation of last week is trying to continue. Overall, the price action still looks like nothing more than a modest consolidation (or small pullback in QQQ) in a bullish trend. However, you’d still be hard-pressed to look at these charts and say the bears are in control in any meaningful way. Obviously, being this close to the T-lines, overextension is not an issue now, either in terms of the T-line (8ema) or the T2122 indicator. Be cautious, but the last indications we received were bullish candles Thursday and Payroll data that will likely be seen as bullish (unless you are one of the “I don’t know why the sky isn’t falling yet” crowd).

As always, be deliberate and disciplined…but don’t be stubborn. If you have a loss, admit you were wrong and take that loss before it gets out of hand. And when the price does move in your direction, always move your stops in your favor and take a little profit off the table. You have to keep the “Legend of the man in the green bathrobe” in mind. In a winning situation, it is NOT HOUSE MONEY you’re betting, it’s YOUR MONEY! There is absolutely no reason to keep raising your bet (risk) size just because you’ve had a win. Finally, remember that trading is not a hobby. It’s a job. The money is real and so is the risk. So, treat it that way. Do the work and follow the process. Stick to your trading rules, trade with the trend, and take those profits when you have them. Do the work!

See you in the trading room.


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