Ping-pong markets, normalizing labor, and headline noise — Discipline still wins

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“En Este Juego”

Stock Operator is a story about a kid who discovers his game and is dedicated to young traders.

Ping Pong – that’s what the action says - yesterday’s tape perfectly captures the current mindset.

On Wednesday, traders sold the broad market and chased beaten-down tech. Yesterday, they sold that tech and rotated right back into the broader market they had just abandoned.

That’s not conviction — that’s ping-pong. This is algorithm-driven, trader-led, short-term churning…..It is not long-term capital making thoughtful allocation decisions. And all it really does is create noise — designed to shake you, confuse you, and knock you off a long-term plan that actually works.

Now, besides the ongoing geo-political noise that is sucking the air out of the room – we did get some more conflicting eco data….Challenger Job Cuts showed layoffs down 8.3%, and that helped reinforce the idea that the labor market is cooling — not cracking. Employers announced just over 35,000 job cuts, the lowest monthly total in more than a year, while planned hiring actually picked up.

Markets initially shrugged off the data because Challenger is inherently noisy but ended up celebrating that news by the end of day. At 4 pm – this is how it looked – Dow + 270 pts or +0.6%, the S&P up 1, Nasdaq down 104 or 0.45%, the Russell gained 28 pts or 1.1%, Transports up 197 pts or 1.1% the Equal Weight S&P up 70 pts or 0.9% while the Mag 7 added just 9 pts.

In the end - the message was clear: companies are no longer in aggressive cost-cutting mode. This report did NOT signal economic stress — it suggests normalization after a year of restructuring. Importantly, it did nothing to change expectations around Friday’s official jobs report or the broader narrative that the labor market is slowing gradually, exactly what the Fed wants to see.

In addition, weekly Jobless Claims fell again — another sign that the labor market is normalizing, not deteriorating. The NY Fed’s 1-year inflation expectations survey also sent a reminder that inflation psychology hasn’t fully reset, with respondents expecting inflation to run at 3.42%, well above the current 2.8% print. So yes, the data are mixed — but there is nothing here that suggests crisis.

Today brings the December Non-Farm Payroll report. Expectations call for roughly 70,000 new jobs, a dip in the unemployment rate from 4.6% to 4.5%, and average hourly earnings rising to 3.6% year-over-year. If that’s what we get — or better — that’s a good report, and markets should celebrate it. But remember, strong labor data also means the pressure to cut rates fades. You can’t credibly argue, “We need to cut rates to save the labor market,” at the same time you’re reporting solid job creation, falling unemployment, and rising wages. That’s the disconnect investors need to keep in mind.

Now back to the noise — because this is a perfect example of it. On Wednesday, President Trump said he was effectively punching the Aerospace & Defense sector in the gut, and the group sold off hard. Then yesterday, he turned around and announced plans to increase defense spending to $1.5 trillion by 2027 — and the very same names that were hit the day before surged right back.

On Wednesday, XAR fell 1.3% and ITA dropped 1.6%. Yesterday? XAR jumped 2.3% and ITA rose 0.5%. Individual names told the same story: LMT reclaimed nearly all of the 4.4% it lost, rising 4.3%, NOC gained back 2.5%, and RTX added 0.8%. That’s not fundamental investing — that’s headline-driven, trader-led volatility at work.

Meanwhile, the Venezuela narrative continues to evolve — and modestly improve. Delcy appears to be choosing a more cooperative path and engaging with the U.S., and President Trump is signaling that American oil companies will be central to rebuilding Venezuela’s battered oil and gas infrastructure. We’re talking about north of $100 billion in potential investment — and yes, you can already imagine the infrastructure and service names that stand to benefit from a commitment like that. Oilfield Services, Energy Infrastructure and Engineering, Pipelines, Storage and Midstream names, Power, Grid & Industrial Equipment, Materials and Commodities…. Reach out to me, I have a list of interesting names!

Trump is meeting today at the White House with major U.S. upstream and oil-service players — names like Chevron, ExxonMobil, ConocoPhillips, SLB, Halliburton, and likely others. He’s also floated the idea that the U.S. could subsidize or reimburse parts of the rebuild to help modernize facilities. The key point here is important: this is not the U.S. government going in to take over. This is about enabling private-sector capital and expertise to do the work — which means real skin in the game.

PDVSA will almost certainly be involved, but let’s be realistic — decades of underinvestment, decay, and past expropriations mean foreign firms remain cautious about PDVSA’s ability to lead a reconstruction on its own. This is a long-term, capital-intensive story — not a quick fix — but the tone is getting better, and markets are paying attention.

Why this matters: over time, a credible rebuild of Venezuela’s energy infrastructure increases global supply, improves reliability, and lowers the geopolitical risk premium embedded in oil prices. More stable energy supply is disinflationary at the margin — helping cap fuel, transportation, and input costs. It’s not an overnight fix, but directionally it matters for energy prices, inflation expectations, and ultimately Fed policy. That’s why markets are paying attention to global supply, not politics.

Bonds fell - the TLT – 0.5%, while the TLH – 0.4%. The 10-yr yielding 4.18% while the 30 yr is yielding 4.85%. Nothing to really see here but let’s look over there -

Yesterday, Trump asked Fannie Mae and Freddie Mac to step up and purchase roughly $200 billion in mortgage-backed securities. The objective is straightforward: reduce the supply of MBS in the market, support prices, and push long-term mortgage rates lower. Call it QE-adjacent. It’s not the Fed expanding its balance sheet, but the effect is similar — more demand for longer duration, tighter mortgage spreads, and lower borrowing costs. Bond investors will like this.

But here’s the bigger point: this is a policy end-run around Jay Powell. If the Fed won’t cut rates quickly enough, Trump is effectively trying to engineer housing affordability through the back door by leaning on the GSEs to do what monetary policy won’t.

The risk: this kind of intervention can and probably will distort price discovery, inflate housing demand without fixing supply, and keep financial conditions looser than inflation data may justify. While it may help mortgage rates in the short run, it risks reigniting housing inflation and reinforcing the perception that policy makers will always step in when markets get uncomfortable. It’s short term effective — but long-term problematic. Again, we need housing prices to come down, and all this will do is cause housing prices to rise – Lower rates, higher prices, higher rates, lower prices…. it’s not rocket science. Leave rates where they are and force natural buyers and natural sellers to clear the market.

Oil continues to trade within the range we’ve been talking about — roughly $55 on the downside and $58.60 on the upside. This morning it’s trading around $58.28, with the move higher being driven more by headline risk than any fundamental shortage. The story is that some supply may be coming off the market due to disruptions in Venezuela and Iran, which is forcing parts of Asia to pay up for barrels rather than rely on discounted Venezuelan crude. That dynamic is lifting the risk premium and supporting prices — but for now, it’s still a range-bound market, not the start of a sustained breakout.

Gold continues to churn…..this morning it is down $4 at $4,474…..Nothing to see here. We remain firmly within the range we’ve been discussing for weeks: trendline support near $4,200 with upside resistance around $4,550.

The VIX remains in the complacent zone.

European markets are higher this morning — EURO STOXX 50 up 1%, France higher by 0.8%, and the United Kingdom up 0.5%. Defense stocks remain in focus, now up five days in a row, fueled by all the rhetoric surrounding Denmark and Greenland.

Look — Greenland is not for sale, so let’s stop the ridiculousness. Denmark is a member of NATO, and the conversation should be about working with allies, not posturing. From a market perspective, the takeaway is simple: heightened geopolitical noise continues to support defense spending expectations, and that’s why the sector remains bid — regardless of the headlines driving the discussion.

U.S. futures are essentially flat this morning — Dow +1, S&P +7, Nasdaq +50, Russell +6. Yes, we’re waiting on the NFP report, but we’re also waiting on the Supreme Court’s decision on Donald Trump’s tariffs. The Court could rule as soon as today on whether the president had the authority to impose sweeping tariffs under the International Emergency Economic Powers Act. Lower courts said he overreached, and the justices appeared skeptical that an emergency statute was meant to grant broad tariff powers traditionally reserved for Congress.

Why this matters is straightforward: if the Court strikes the tariffs down, it could open the door to refund claims north of $150 billion and spark near-term volatility in trade-exposed sectors. If the Court upholds them, it cements expansive executive authority in trade policy. Either way, this isn’t about tariffs disappearing — it’s about how they’re imposed going forward and whether future trade actions require more congressional involvement.

Importantly, this is not a “sell the whole market” moment. It’s a sector rotation, not a systemic shock. Industrials and materials would likely feel pressure as tariff protection fades and pricing power erodes. On the flip side, consumer discretionary and technology quietly benefit from lower input costs, less supply-chain friction, and reduced inflation pressure. Financials, healthcare, and utilities largely shrug. Bottom line: this doesn’t derail the bull market — it simply reshuffles leadership.

The S&P 500 closed yesterday at 6,921 up less than 1 pt. Trendline support sits near 6,815 and resistance is at 6,945. If all goes well, (Eco data and supreme court decision) then we will explode up and thru resistance…… If not, more churn.

In the end – Stay disciplined. Stay focused, stick to your plan and don’t get drawn in the fray.

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