Cooling, not cracking: The economy is normalizing — And markets are handling it just fine

The NFP report managed to do what it always does — make some investors happy while pushing others toward the edge of a breakdown. Headline number first: the economy added 64,000 new jobs in November. That’s positive, not overheated — and that’s the point.

Dig a little deeper and the report actually gets better, not worse. We continue to see a decline in government jobs, which is healthy, (new jobs are private sector vs. the gov’t creating jobs) all while unemployment ticked up from 4.4% to 4.6%. That may sound uncomfortable, but let’s be very clear — this should surprise absolutely no one.

Unemployment had to move higher. We have been talking about this for weeks. A labor market cannot cool off without a rise in the unemployment rate, and 4.6% is not a crisis number. It’s above the cycle low, yes — but it remains historically low and entirely consistent with a labor market that is slowing, not collapsing.

What this report tells us is that the labor market is losing a bit of heat, which is exactly what the Fed has been trying to engineer. A modest uptick in unemployment eases wage pressure, allows inflation to continue normalizing, and — importantly — does so without requiring aggressive Fed action.

Let me repeat that: without requiring aggressive Fed action. So all those guys screaming for lower rates need to just settle down.

Bottom line - A 4.6% unemployment rate says the labor market is normalizing, not breaking. It’s a slowdown the Fed should be comfortable with — and one the market can handle. Period.

In addition – we saw that Retail sales Ex autos and gas rose more than expected at 0.5% while both the Manufacturing and Services PMIs remain in the expansion zone at 51.8 and 52.9 respectively.

At the close, this is what we saw - the Dow fell 302 pts, the S&P fell 16, and the Nasdaq sprinted a bit higher – rising 54 pts, the Russell lost 11, Transports dropped 9, and the Equal Weight S&P fell by 55 points while the Mag 7 – like the Nasdaq ended the day higher….up 275 pts.

And the strength in the tech space makes sense as it has been under pressure for 4 or 5 days, so some traders went bargain shopping…but beware – this index did close below its 50 dma trendline, which may suggest a bit more caution ahead.

And speaking of trendline – the S&P also traded down to trendline support - and if you remember – here is what I told you yesterday morning.

“Trendline support is at 6763 down 53 pts or less than 1% from here – a level we might test today…and if it fails to hold up then look for the algo’s to go into sell mode as that suggests a ‘technical break’ that could take us lower to test intermediate support at 6630. If we hold then expect a bit more churn and then a push higher…”

Well, we tested it, it held and then we churned and ended the day off the low at 6800 (above the trendlines). Which suggests to me that the bulls will defend the position as we move into the end of the year.

In the end – be careful not to read too much into any of these reports – the data is coming off a gov’t shutdown and in my opinion is fairly noisy. And while some will say that it strengthens the case for another rate cut, I say – slow down big boy….we just cut rates by 75 bps over the past 3 months – we need to let those cuts work their way thru the system and the committee, like the investment community is clearly split on further cuts at the moment.

Eco data today includes – Mortgage apps, Housing Starts and Building Permits – both expected to be up 1.6% and 1.5% respectively. New Home Sales though – are expected to be down by 10.8%.

Bonds rose and that sent yields lower. The TLT up 0.6% and the TLH rose by 0.5%. The 10-year Treasury is yielding 4.14% down 3 bps, while the 30-year sits at 4.82% down 2 bps.

Bitcoin continues to trade lower – this morning it is down $1300 or 1.5% at $86,400, Ethereum is trading down 1% at $2920 while Solana is trading down 1.4% at $126.

Oil is trading modestly higher this morning, up about 2.3%, or $1.30 a barrel at $56.60, after President Trump said he has surrounded Venezuela with “the largest armada ever assembled in the history of South America.”

Posting on Truth Social, President Trump demanded the return of what he called “stolen U.S. assets,” referencing Venezuela’s 1970s nationalization of its oil industry, when foreign operators were forced to hand majority control to the state-run oil company PDVSA. Despite the drama, markets are barely reacting.

Why you ask? Because Venezuela currently produces less than 1 million barrels per day, making it a non-factor in global supply terms. So, while the headline is dramatic this is not a game-changer for global oil markets. The real objective here is aimed squarely at removing Nicolás Maduro and slowing the supply of drugs to America. Oil remains below all 3 trendlines and in the $55/$59 trading range.

Gold is trading p $14 at $4350/oz. The move higher this morning is all about the rising tensions around Venezuela although some will tell you that it is because we are waiting for tomorrow’s CPI data – which is expected to show topline inflation running at 3.1% y/y while Core inflation is up 3% y/y. OK – either argument works because gold will advance when there is geo-political unrest and gold will advance if it expects rising inflation. And the CPI IS trending higher and has been trending higher and in my opinion – rising inflation is a direct result of Fed rate cuts…..Period. (Think 1980!)

This morning futures are higher…. which I think is more technical than not. Dow futures are +79, S&P +20, Nasdaq +95, while the Russell is +7. I continue to think the moves are just more churn as we move into the end of the year. Remember – the next two weeks are holiday shortened weeks, players will be away, volumes will decline and moves will be amplified – in either direction.

This is not the time to make emotional decisions…. stick to the plan – Capisce?

European markets are churning a bit higher. The ECB announces their decision tomorrow and is expected to keep rates unchanged. The BoE will also announce, and they are expected to cut rates by 25 bps. Today the UK reported that their inflation rate fell to 3.2% down from 3.6% last month…. That is a substantial m/m decline.

The S&P closed at 6,800 – down 16 pts. As noted – we did test trendline support at 6763 – churned a bit and then ended the day above the line. As a result, I expect the markets to churn a bit higher – but I do think we remain in the 6,763/6,920 trading range thru year end.

Veal osso bucco

Veal Shank “Osso Bucco” What a great dish - Thick, meaty, delicious.... if done right - it falls right off the bone and melts in your mouth........Osso buco: is a specialty in Milan. It is made with carrots, celery, onions, garlic, S&P, lemon zest, red wine, beef broth and tomato paste. I will tell you that this is one of my favorite dishes. Great for a Christmas dinner or a Saturday night dinner party during the winter as it is a hearty and full-bodied dish. You prepare it in the afternoon and then let is slow roast in the oven for hours......try it…it is wonderful.

For this you need: Veal shanks, flour, butter, celery, carrots and onions (diced), plenty of sliced garlic, tomato paste, lemon zest, Beef broth and red wine and s&p.

First rinse the shanks and pat dry....dredge in seasoned flour – and then brown in a frying pan with heated olive oil.....making sure that you keep the heat on high to sear the outside while trapping all of the juices inside....After you have browned the meat - place in a roasting pan - making sure not to crowd them too much.....At this point - chop (not dice) chop, the carrots, celery and onions....crush 4 / 5 garlic cloves and spread the garlic and veggies over the meat. Add lemon zest on top - not too much - but enough so that you know it’s there.

Back to the frying pan - deglaze with red wine, add beef broth and a can of tomato paste (not puree) paste. Stir - bringing to a boil - then reduce heat and let thicken a bit - all of 4 mins or so.........if need be - add a bit more beef broth - then add this mixture to the roasting pan - making sure that you bathe (not drown) the shanks in wine/beef broth. Cover tightly and place in a 350 degree oven for 1 hr. and then reduce heat to 325 and leave it in for 4 more hrs.....when ready....take a look, smell the wonderful aroma, notice how it fills the kitchen and permeates the house.....

When done - remove 1/2 of the veggies and puree. Place some of the pureed veggies in the center on a warmed plate and then place a veal shank on top of that. Next - take some of the remaining veggies and circle the shank. You should serve this with a nice onion risotto or even creamy mashed potatoes....

Have your guests take a seat, light the candles, turn on some nice dinner music to fill the room. Try this with a Brunello di Montalcino - it’s like velvet and always works nicely.