• RISK ON big time, NFP report was mixed at best.

  • Dow industrials up 2.1% taking it positive on the year.

  • Is AI the new Dot.Com? Will history repeat itself?

  • The Saudi’s voluntary cut production – were you really surprised?

  • Oil up 2.6% today…. Shorts get squeezed.

  • Try the Lemon Spaghetti with Fresh Asparagus.

It was RISK ON BIGTIME!  Stocks exploded out of the gate and surged higher all day long – good news is now good news for investors…. On Friday – we got the NFP report and it ‘blew past’ every estimate…. suggesting hiring remains strong and the good part?  Inflation appears to be subsiding, wages fallinig and that was the story……Now the relentless rally in anything considered to be AI, (think megatech) coupled with the latest bet that the FED will ‘skip’ raising rates at the next meeting sent stock investors into overdrive as the algo’s tripped over each other to get in…the Dow Industrials rose 2.1% taking that index into positive territory for the year. 

And in another nod to the AI mania - Broadcom (AVGO) rose nearly 2.7% after they said at, they expected sales tied to anything AI will at the very least DOUBLE this year.  This AI narrative is becoming the norm and investors can’t get enough making this the new ‘Dot.com’.  Just for reference it was September 27, 1999 – when Time Magazine featured this cover story –

GetRich.COM – Secrets of Silicon Valley…

On that day - the Nasdaq closed at 2761 – by March 13th, 2000 – Just 6 months later – the Nasdaq top ticked at 5,132 an 85% increase in the index…before the bottom fell out (as investors realized they got hoodwink….) – leaving the index down 68% at 1,673 on April 4th, 2001 – one year later….. The Nasdaq never recovered from that sell off until  July 16, 2015….But before you go and sell everything – it is different this time…..because then the companies had zero revenue, zero earnings or zero real valuations but they did have Henry Blodgett -the famed and now disgraced internet analyst – that let you believe that ‘trees can grow to the sky as long as they had ‘dot com’ in their name.

Today it is (kind of) different – and why?  Because the companies today that we are talking about are REAL companies with REAL earnings and REAL valuations. I mean we are talking about NVDA, MSFT, GOOG. IBM, AI, AMD, INTC, etc.…but what IS the same is that many street analysts (think a different generation) today are also letting you believe that ‘trees can grow to the sky’ – causing this ‘rush’ into the space…..that can end 1 of 2 ways…..they can grow to the sky OR they don’t…. I guess we need to wait and see what the Time cover article predicts.

Ok – back to Friday’s explosive rally….-  The algo’s sensing the buyside interest – cancelled inline supply leaving a void in prices- only causing the FOMO buyers to panic…as they chased stocks higher……Here we have the exact opposite of what happens when the news is bad and the sellers all run for the door and the buyers ‘back off’ causing stocks to plunge as the sellers panic….Capisce?

Those panicked buyers are the ones that try to pick tops and bottoms trading the market vs. staying invested, tweaking and adding to names on weakness….instead, they choose to make a bet that prices are going down, so they ‘get out’ (vs. just buying downside protection and maintaining their long positions)  and when prices don’t go down to the extent that they assumed (think Mikey Wilson of MGS fame who is still calling for a 16% drop in profits that would slam the brakes on this latest move – sending the S&P reeling – tumbling 1200 pts  which would be a 30% decline)  - guess what?  They say “oh boy!  I have to get in….” and BOOMMMMM!  Up we go and by 4 pm on Friday the Dow added 700 pts or 2.10%, the S&P up 61 pts or 1.5%, the Nasdaq (this year’s darling) gained 140 pts or 1%, the Russell gaining 62 pts or 3.5% and the Transports up 270 pts or 2%.  The FEAR trade – the VIX - continued to plunge on this move – falling to its lowest level since February 2020 ending the day at 15.23 – suggesting a lot of complacency – which we know can turn on its head very quickly – but for now – it is what it is.

Look investors have been doing this dance, kind of like the Hokey Pokey – You put your left foot in, you take your left foot out, you put your right foot in and you turn it all about, you do the Hokey Pokey and you turn yourself around – That’s what its all about!  It is those investors that panicked on Friday….because they are sitting on the sidelines with too much cash (think going in and then going out and turning yourself around) …..Now, the investors that have been patient, love this…because they don’t have to do anything – they remained invested - they just sit and enjoy the ride….taking the gains to the bank! 

Treasury yields rose on Friday on the idea that even if the FED skips in June, there is a possibility that they could rise again in July.  The 2 yr. treasury yield rose to 4.5% - up from 4.339%.... The 10 yr. went from 3.59% to end the day yielding 3.69%.  The 1 month is at 5.13%, the 3- & 6-months bills are yielding 5.16% and 5.19% respectively.

Now oil!  Over the weekend – OPEC+ met in Vienna – something that we have been discussing …and what happened – exactly?  Oh right, the Saudi’s voluntarily CUT production by another 1 million barrels/day in July and said that that ‘voluntary’ cut could be extended thru 2024 if they determine the market is oversupplied. As you might expect – Oil shot higher on Monday – rising 2.6% or $1.90/barrel, taking WTI to $73.60 barrel.

Now, the latest voluntary cuts can be revisited if the economic outlook changes and if demand warrants it, but right now – they have identified December 2024 as the ‘good until’ date.

Prince Abdulaziz saying that he (they) “will do whatever it takes to stabilize the oil market – which is suffering from uncertain demand and weak Chinese economic data.” – that cut makes good on his promise to traders who were (are) betting against the oil market to ‘watch out’….

In the end – it is the Saudi’s that will sacrifice market share to stop the bleed and stabilize the oil markets.  (Think $80/barrel). The other members pledged to maintain their ‘existing cuts’ through 2024.  Vlad though, made NO commitment to cut production because he has a war to finance, so he needs to sell more oil to power his war machine.  

This morning – US futures are essentially flat…. The Dow is up 40 pts, the S&P up 1, the Nasdaq is down 30 and the Russell is up 2.  Now the S&P is up 11.5% ytd…but it is up just shy of up 20% off the October 2022 closing low….leaving it on the edge of being defined as a bull market (if you are counting the closing low against the closing high, but if you look at the intra-day low vs. the intra-day high – then yes, we are already IN a new bull market – up 22.8%) ….….and that is also what caused the algo’s into overdrive – because a 20% move up off the low – will be a ‘technical’ buy signal and that will cause even more money on the sidelines to jump in….

Eco data this week is relatively light, but today includes some important info…. S&P US Services PMI of 55.1 (expansionary), ISM Services PMI of 52.4 (still expansionary), Factory Orders of +0.2%, Durable good orders of +1.1% while Ex transports are expected to be -0.2%.  Now, I say important because the US economy is a 75% SERVICES economy and so continued strength in that sector will weigh on the FED think.  Later in the week – we will only get a handful of data points that won’t really drive the action, so the focus from now until the 14th will be all about what the FED will do.  The FOMC meeting is Tues/Wed of next week….so members of the FED’s FOMC committee are preparing to go into ‘lockdown mode’. 

Other KEY global events this week include a speech by ECB President Lagarde today at the European Parliament.  Rate decisions by Australia, Canada, Peru, Poland and India – none of which will be a directional driver for US equities at all.   Eurozone GDP is due on Thursday and Chinese PPI & CPI on Friday….

European markets are mixed…. The UK is +0.5%, CAC 40 -0.2%, DAX +0.1%, EUROSTOXX -0.1%, SPAIN +0.3% and ITALY -0.2%.  As you can imagine – oil (energy) names are up after the latest Saudi announcement. Remember- OPEC+ did not cut further, they are holding production levels, it is only the Saudi’s that volunteered to cut production. In addition, investors across the zone continue to assess the latest inflation figures as Christine Lagarde says that 6.1% was still too damn high while she promises to continue hiking rates.

Gold –is down $10 today at $1950/oz…this as gold traders are not convinced that the FED will pause in June…. which is interesting – because they seem to be the only ones that do not believe it…. To be fair – the dollar index continues to push higher and that is a negative for Gold – but explains why gold traders are selling the shiny metal.  We are now below the intermediate trendline at $1975 – leaving the long term trendline as the next REAL support and that is at $1882/oz. Now if the FED skips in June, the dollar should retreat a bit, but not too much because the threat of higher rates still exists and if rates go up, then the dollar will go up and gold will go down because non-interest-bearing gold is less attractive in a high-rate environment.

The S&P closed at 4282 up 61 pts…. Leaving it up 11.5% ytd.  Now, while I thought the market appeared tired and a pull back would not be out of the question…that is not what happened on  Friday….So, I guess I might have been a bit early, but I do think we are near the highs for the year…which only means that we could pull back over the summer and then rally back to these levels at year end.

As discussed, that does not mean I am out of the market – I am not…. I remain fully invested and am adding new money to sectors that have become underweight in my portfolio think financials, energy, & healthcare.  

Investors need to focus on the FED now that the debt news is history…. It now appears that the August highs of 4290 is in the bullseye…. Trendline support is now at 4115. 

Spaghetti with lemon and asparagus

Another great summer dish…it’s light, it’s refreshing, and it is simple to make.

For this you need:  1 lb. of spaghetti, asparagus (cut into bite size pieces and then cut those pieces in half.  Leave the flower – do not slice.), olive oil, s&p, plenty of garlic, red pepper (optional), fresh lemon juice and lemon zest, fresh basil leaves and fresh grated parmegiana cheese.

Bring a pot of salted water to a rolling boil – and add the spaghetti.

In a large sauté pan – turn the heat to med high, heat up the olive oil and add the sliced garlic…like 5 gloves – add the asparagus and red pepper (if using) – sauté for 2 – 4 mins.

Cook the pasta for about 8 mins – it will be a bit undercooked…. – add 1 c of the pasta water to the sauté pan.  Now using tongs add the pasta.   (If you need more water– then add a bit more). Continue to cook on med heat…. If it sucks up the pasta water, then add a bit more…. Not soupy, just moist. When done – maybe 2 mins or so, remove from the heat, add the juice of one lemon and the zest.  Toss to combine.  Add a handful of cheese and a drizzle of olive oil. Toss to emulsify. And then serve with fresh torn basil leaves on top.

 

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Information and commentary provided by ButcherJoseph Asset Management, LLC (“BJAM”), are opinions and should not be construed as facts. The market commentary is for informational purposes only and should not be deemed as a solicitation to invest or increase investments in BJAM products or the products of BJAM affiliates. The information contained herein constitutes general information and is not directed to, designed for, or individually tailored to, any particular investor or potential investor. This report is not intended to be a client-specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon. There can be no guarantee that any of the described objectives can be achieved. BJAM does not undertake to advise you of any change in its opinions or the information contained in this report. Past performance is not a guarantee of future results. Information provided from third parties was obtained from sources believed to be reliable, but no reservation or warranty is made as to its accuracy or completeness.

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