Markets Jittery Ahead Of Jobs Report

By the closing bell on Wednesday, there was a lot of green on the screen; all the major equity indices were higher, along with gold and bonds. The gains were slim, and it was a push and pull until the final minutes of trading. For the year, it’s the Russell 2000, still ahead of the pack. 

• Russell 2000: +16.4%
• Dow Jones Industrial Average: +13.1%
• S&P 500: +12.0%
• Nasdaq Composite: +6.7%

Market breadth was pretty ho-hum, looking at advancers to decliners, but other components were very intriguing. A major decline in 52-week lows suggests greater bottom fishing, and up volume was significantly bullish.

There were six winning sectors, with the most intriguing being Real Estate (XLRE).

Intriguing Moves

The weekly mortgage index slipped 4.0%. Purchases, down 3.1% and refinance down 4.6%. A lack of supply has hampered mortgages. I am not sure why there aren’t more refinancing efforts happening. However, I have been pondering getting back into homebuilders as lumber comes down, but I am just unsure.

• Lennar Corporation (LEN)            96.35    -2.15    -2.18%
• D.R. Horton, Inc. (DHI)                 92.96    -2.09    -2.20%
• KB Home (KBH)                              45.87    -1.26    -2.67%
• Toll Brothers, Inc. (TOL)               63.91    -1.57    -2.40%
• Beazer Homes USA, Inc. (BZH)    23.75    -0.25    -1.04%

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Gold closed above $1,900 as the stealth rally picked up momentum.

Commodities Supercycle

Last week’s commodities seemed to have stalled, and there was talk (including from myself) that perhaps the Supercycle was over for now. As you know, there were many changes in last week in the market. And all of a sudden, commodities have resumed their big run. The Commodity Research Bureau (CRB) Index saw a major breakout - and if you think it’s extended, go to a ten-year chart where it’s clear there is a lot more upside potential. 

To see the chart, click here.

Fed Beige Book

Overall Economic Activity

The national economy expanded at a moderate pace from early April to late May, a somewhat faster rate than the prior reporting period.  The effects of expanded vaccination rates were perhaps most notable in consumer spending in which increases in leisure travel and restaurant spending.

Employment and Wages

Staffing levels increased at a relatively steady pace…it remained difficult for many firms to hire new workers, especially low-wage hourly workers, truck drivers, and skilled tradespeople. The lack of job candidates prevented some firms from increasing output and, less commonly, led some businesses to reduce their hours of operation.

Prices

Selling prices increased moderately, while input costs rose more briskly. Input costs have continued to increase across the board, with many contacts noting sharp increases in construction and manufacturing raw materials prices. Looking forward, contacts anticipate facing cost increases and charging higher prices in coming months.

Reopening Hoopla Fizzling?

There is still an outsized interest in home appliances and improvement. But the spike in many reopening niches of the economy have begun to settle. People are still looking for apartments and clothes.

To see chart, click here.

The S&P 500 is poised for a true breakout – it could happen on Friday, but it must happen soon.

Portfolio Approach

Yesterday, we took a 27.8% profit (versus the S&P500 up 1.1% during that period) in a Consumer Discretionary name.  We added new positions to Energy and Technology in our Hotline Model Portfolio.  If you are not a current subscriber to our premium Hotline service, email info@wstreet.com to get started today.

Today’s Session

The market has been under pressure all morning in part to the typical anxiety the day before the jobs report.  Equity futures actually improved with release of ADP Jobs report and latest read on Initial Jobless Claims.

ADP was strong with 978,000 jobs, but the street will take the news with a grain of salt considering how far apart the April number was from the Bureau of Labor Statistics.  Sequential growth is encouraging, and there could be a revision to the BLS number tomorrow if their May result is as robust as ADP.

Initial jobless claims had a three-handle coming in at 385,000 for last week, down from 405,000.  The news is good, but at this point, folks have to wonder why it’s this high.