Headline: JOLTS report signals economic slowdown, stocks mixed, bonds rally – Plus

• JOLTS report suggests a weakening economy, stocks churn, bonds rally.

• Consumer Staples advance, Basis Materials drag.

• Oil/gas inventories rise – oil prices decline.

• Gold awaits more data.

• Lots of inflation focused eco data in the next week.

• Try the Chicken Rollatini.  

Stocks churned really – another piece of economic news that suggests more of a slowdown and more of a chance of a rate cut failed to ‘rally the troops’ as the usual ‘bad news is good news’ for the markets…in fact – yesterday I asked -is ‘bad news now bad news’ for the markets?  Yesterday’s economic data focused squarely on the JOLTS report – the Job Opening Labor Turnover Survey – which is a monthly survey produced by the BLS (Bureau of Labor Statistics) that provides us with data on job openings, hires, quits and layoffs in the US labor market. Many live and die by this data point as they view this data as a valuable source of information on the dynamics of the labor market and the current psyche. 

Job openings are just that – the number of jobs available – which speaks to demand.  The higher the number the more demand and vis a versa. Hires – is the total number of additions to the payroll – this speaks to the speed at which employers are filling jobs.  Quits is just that -the number of ‘voluntary’ separations (not including retirements) – and this speaks to your level of confidence in being able to find a new job.  Layoffs are just that- layoffs – that speaks to the stability of the labor market.  And like so many eco data points that we get every month – this is just another one that policy makers, economists, analysts, strategists and business leaders use to make decisions about future policy and strategy.

Yesterday’s JOLTS report came in well below the estimate of 8.3 million at 8.06 million - suggesting a ‘weakening’ in this data point (fewest openings in 3 yrs.)…..and that is the ‘bad news’…recall that this number peaked out at 12 million jobs in March 2022 – when the demand was high for workers as we were coming out of the pandemic and businesses were re-opening. The other data points – Factory Orders, Durable Goods, and Capital Goods Ordered and Shipped all came in inline – so no surprises there…. thus, the focus on the JOLTS report…again – because it supports the slowing economy narrative and the need for rate cuts.

But again – this is not the same story that we have been listening to….the rate cut story and market rally was built upon the idea that the FED was too restrictive, that rates were just to damn high, that we could cut rates without risking an uptick in inflation, that the economy was strong enough VS. the narrative now which is that the economy is ‘no longer strong enough’ , that the restrictive level of rates has now damaged that strong economy (because JJ waited too long to cut) and THAT is a different story going forward.  This story is now becoming negative…and negative is not so good for stocks, future profits, future guidance, margins, employment, spending etc., but it is good for bonds.

By the end of the day -The Dow Industrials gained 140 pts or 0.3%,  the S&P gained 8 pts or 0.15%, the Nasdaq gained 28 pts or 0.15%, the Russell LOST 25 pts or 1.25%, the Dow Transports lost 136 pts or 0.9%  while the Equal Weighted S&P gave up 20 pts or 0.3%. .

Bonds – rallied on this news – the FED swaps market is now pricing in a September cut as ‘guaranteed’… (which is always a dangerous thing to do).  The TLT was up 1.7%, the TLH up 1% while the AGG was up 0.3%.  The 2 yr. yields fell to 4.77%, the 10 yr. fell to 4.33%. Mortgage rates which hit 8% in October 2023 are now hovering around 7.4% for traditional 30 yr. money if you have a 740 FICO score.  People with a 700 score can expect to pay significantly higher while those with an 800 score will pay lower.

Of the 11 S&P sectors - the standout was…. Consumer Staples!  XLP is up 0.9% - and this makes sense, right?  Staples included essential products – think food, beverages, household goods, and personal care items – which you also need in a booming economy – but in a booming economy there are ‘other options’ of where to put your money (think growth) …. Staples become boring.  But in a weaker economy, staples become more important as an investment and value play. They offer stability and resistance, they are considered defensive, they are good divy payers, they can maintain margins, protecting investor value and offer good diversification since they move in the opposite direction of the more cyclical sectors like tech and industrials. They are considered ‘mature’ and ‘mature’ is good in an unsteady environment.

The biggest loser – while you may have thought was energy – which was down 0.9%, would be wrong…it was Basic Materials – down 1.1%.  Why?  Because basic materials are highly sensitive to the economic cycle – during downturns ‘demand’ for metals, chemicals, and building materials typically decline as construction projects, manufacturing and industrial activity slows…. So, if the narrative becomes a slowing economy – then this too makes sense. The other 9 sectors were mixed…Real Estate, Healthcare, Communications, Consumer Discretionary and Tech all just a bit higher while Industrials, Utilities, Financials, and energy were all a bit lower.

Oil continues to plummet after the Sunday OPEC+ meeting where they intimated that more supply - from some of the members - may be coming to an already weak market in the fall.  WTI fell another 1.75% to end the day at $72.92/barrel after trading as low as $72.48.  We are now well below the long term trendline at $77.51 and the momo (momentum) guys appear to want to test the Dec – February lows of $70.  Something I think it could do –

Yesterday the API (American Petroleum Institute) reported that US crude oil, gasoline and distillates inventories ROSE last week – and this suggests either weakening demand or just a big oversupply or maybe a combination of both.  Crude stockpiles rose by 4 million barrels vs. the estimate of a 2.3 million barrel decline…Gasoline stockpiles rose by 4 million barrels as well, vs. the 2 million expected increase – and all this is even more important as these figures revolve around the long Memorial Day weekend – which marked the start of the summer driving season. The EIA (Energy Information Administration) is due to report today – Could their findings be significantly different? We are about to find out.   

Gold continues to trade at $2,350 – teasing just below the trendline at $2,365 as investors remain patient…Again – remember – if rates go lower – then the dollar will go lower, and gold and other commodities should find support and move higher.  During the last month – we saw the dollar decline by 2.3% to trade at 104.28.  Gold did rise by 6% in May as the dollar declined but retreated into the end the month as the uncertainty over rates continued.  We remain in the 2300/2400 trading range.

Eco data today includes – Mortgage apps, ADP employment - expected 175k new jobs created, and the all-important – S&P US Services PMI and ISM Services PMI – both expected to be in expansionary mode – S&P at 54.85 and ISM at 51.  Remember – the US economy is a 75% SERVICES economy, so this IS important. In addition, we will get ISM Services Prices Paid and that is expected to be a healthy 59 – and essentially flat over last month… And then we will get ISM Services employment of 47.2, up on last month, and Services NEW orders of 53.2, up from 52.2 and all this tells us is that the services part of the economy remains strong. Again – a bit conflicting. (Recall that ISM Manufacturing counterparts all fell this month and that is what lit the fire under the ‘weaker economy’ narrative.)

Remember – we have the May NFP report out on Friday and then the PPI, CPI and FOMC announcement next Tuesday and Wednesday – so get ready for a boatload of inflation related data points – that will surely drive the next part of the conversation.

US futures are churning higher……Dow +45, S&P’s up 10, Nasdaq +85 and the Russell up 3.  HPE up 14% this morning as AI server sales surge and CRWD up 7% on stronger than expected earnings, NVDA is up another 1.5% as Lonnie redirect chips from TSLA to X and xAI….

European stocks are also higher this morning…. Investors anxiously awaiting the ECB rate policy decision…. Eurozone business activity rose the 3rd month in Germany, Spain and Italy – while slipping slightly in France.  UK data showed their activity also grew in May – albeit slower than the pace of April.  Christine Lagarde – President of the ECB – is widely expected to cut rates for the first time since 2019 today….but recall that on Friday – we learned that Eurozone inflation ticked higher  in April, something that might cause her to do nothing….and since mkts have been expecting a cut, a nothing done may cause a negative reaction.  So, sit tight.

The S&P closed at 5291..up 8 pts….as we wait….While many are now pushing the ‘evidence is accumulating’ story I am not convinced yet…which doesn’t mean I am not invested, I am…and so should you, it just means I am being more strategic in what I buy and how I buy it…..I like consumer staples, utilities and SMID’s (small and mid-caps) as buying opportunities, and remain long tech, industrials, energy and  financials. 

While there is nothing that suggests we are on the doorstep of a recession, there is starting to be evidence of a slowdown…. the depth of which we do not know yet…Which is why you need to stick to the plan as a long-term investor.

Remember - no one in the US expects a change in policy next week –but there are some who are expecting JJ to change the tone of his speech, become less hawkish and more dovish….

Chicken rollatini

This is one of my favorites from my childhood.

For this you need. Thin sliced chicken breasts, deli meat – either ham, salami or even pepperoni, cheese - think provolone, asiago or some other cheese that you like. s&p, butter, chicken stock and olive oil.

Preheat your oven to 350 degrees.

Begin by laying out the chicken breasts – season with s&p, line them with a slice of the meat and then the cheese – (whichever you used), roll and then pin with 2 toothpicks.

When completed – heat up a table of ½ stick of butter and when it starts to bubble – add the rolled chicken pieces and brown on all sides. 

Deglaze the pan with some chicken stock – add a bit more butter.

Place the browned chicken in a Pyrex baking dish, pour the butter and chicken stock from the frying pan, cover and place in the oven.  Cook for 15 mins…

Remove and serve with a fresh salad.  I used Romaine and arugula, red onions, sliced cucumbers, cherry tomatoes and scallions.  I dress it with fresh lemon juice and a splash of olive oil, season with s&p, and dried oregano.  Simple.  This dish should feed a family of 4 for about $35.  ($12/head).