A week of whiplash: Stocks drop then rally, Fed stands pat, jobless claims drop

• It’s been one wild week – stocks about to take back all the losses.

• So much for the Emergency FED meeting.

• US Jobless Claims surprise to the downside – igniting a rally in stocks.

• Oil up, Gold up, Bonds down.

• I’m having a Martini!

Ok, let’s get this right – the Initial Jobless claims fell claims coming in at 233k vs. the expected 240k and 16k below last weeks 249k and on that – the market had it BEST rally in 2 years?  Is that what happened? I just want to be clear here -

The Dow rose fell 685 pts or 1.76%, the S&P added 120 pts or 2.30%, the Nasdaq surged by 464 pts or 2.87%, the Russell up 50 pts or 2.4%, the Trans jumped 255 pts or 1.68% and the Equal Weight S&P rose 125 pts or 1.8%.

Stocks soared – Bloomberg calling it a ‘solid rebound,’ which is laughable – what happened to the DEMAND for an EMERGENCY FED meeting to slash and burn rates from Monday – because the US was circling the drain? Monday’s debacle was a dramatic move created because Japan raised rated last weekend -causing the carry to implode -which caused numerous hedge funds, who borrowed Yen at near zero rates, converted it to Dollars and then LEVERAGED that to go out and buy stocks in the US over the past year…..(think the Mag 7). 

So when the cost of the Yen went up, it put pressure on all those guys that played that Yen carry trade (which had been working for quite a while) to suffer extreme pain – remember – leverage works both ways….it’s great when it works and it’s a disaster when it doesn’t.    And what did they all have to do? They had to sell their stocks to pay off their Yen loans…and as we know they all ran for the door at the same time and BOOM!

And that was a big NEGATIVE story – that only created more negative stories - causing lots of losses for EVERYONE – when most of us had NOTHING to do with it…. that then turned into the US is circling the drain and unemployment was about to explode higher blah, blah, blah. It had Andy Sorkin from CNBC hysterical in the morning as futures plummeted….

It’s how tech reported ‘less than stellar’ earnings which is NOT true – What is true is that they all took Tech to outrageous valuations (part of that was the upward pressure caused by all those guys that used the Yen carry trade) Valuations that many street analysts had been saying all along was ‘ridiculous’ – but many did not listen and kept piling in for fear of missing out. So, when it all falls apart – Monday happens…. (Again, exactly why you should have a PLAN and not just follow the herd – because many in the herd got smacked and smacked big.) And for that – the rest of us got taken to the woodshed as well…. causing fear and panic for some – only adding to the chaos.

But then when yesterday happens – and the same algo’s and traders that sold it down – all come back and take it up like there is no tomorrow –Many ask – ‘Wait a minute – WHAT just happened?

So yesterday – the story was not about the US going down the drain, or how JJ screwed it up or that inflation remains a real issue – but rather, it’s about how Initial Jobless Claims fell by 16k (better than expected) thus EASING  fear that the labor market is weakening… ARE YOU KIDDING ME? 

You had ‘experts’ like Wharton Professor Jeremy Siegal and Kings College Mohammed El-Erian get on TV on Monday /Tuesday and scream about  how the FED (JJ) missed the boat, did not see the signs, and needed to call an emergency meeting (which screams panic as well) to slash and burn rates before it’s over and then we had the biggest rebound in a year?

All of the major groups in the S&P advanced…. this as the media made sure inform us that the Initial Jobless Claims report FELL the most in one year! 16k jobs and this what we got? How about it’s how stocks were all taken to well oversold levels and the indexes were left sitting right atop their ‘oversold’ levels (see yesterday’s note) and so this tiny piece of news (which typically is NOT a real market driver) gave the same algos’ that destroyed the place on Monday a reason to take advantage on Thursday.  And so, for those without a plan, that followed the crowd out, are now following the crowd back in…. It really is a tangled web we weave.

It doesn’t get any more complicated than that.

Tech up 3.7%, Industrials up 2.3%, Healthcare up 2.2%, Consumer Discretionary up 2.2%, Energy up 2.1%, Communications up 2%, Financials up 1.6%, Basic Materials up 1.5%, Consumer Staples up 1%, Real Estate up 0.8% and Utilities up 0.1%.

The contra trades got whacked (remember I told you they are strategic moves, not long-term moves) the Dog – 1.7%, SH – 2.2% and the PSQ -3%. The VIX declined by 14% so the VIXY fell by 8%. The triple LEVERAGED SPXS (s&p Short) lost 7%.

And so, as you would expect- when the market rallies like that, bonds prices decline…from what also had been a big rally created by the building angst. The TLT etf fell by 0.6% while the TLH etf. fell by 0.5%. The 2 yr. is now yielding 4.02% while the 10 yr. is yielding 3.99%. Mortgage rates fell to the lowest in over a year – at 6.37% for 30 yr. fixed conforming.

And you know what is funny?  Oil climbed by 1.15% on the ‘positive jobs data’! And you know why? Because they say it ‘calmed fears over weakening demand! That’s laughable…. How about we discuss how the Mid-East is on the verge of imploding – Doesn’t that make more sense?

Remember - they had sold it down because they thought there WAS going to be a peace deal? That didn’t happen.  They sold it down on the idea that the US was going off the edge and demand would crater…. but now yesterday’s ONE report changed all of that. How about we discuss it was sitting on its oversold line in the RSI chart and so it bounced?

Oil is now up 7% off the August 5th low…. testing the trendline at $76.527…If it pierces that – then $78.20 is the next stop. 

Gold which had been trading in the $2425/$2450 range also broke out to the upside and is trading at $2468 this morning. The idea that rates are still expected to decline by 25 to 50 bps in September helped to stabilize gold. It is now in the $2450/$2500 range.

There is no Eco data today. Next week brings us the July CPI and PPI along with Retail Sales, Industrial Production, Capacity Utilization, Housing Starts and Building permits and a whole lot more.

US futures are essentially flat this morning.  Dow -4, S&P’s up 6, Nasdaq up 46 and the Russell is up 5.  We are close to wiping out all of Monday’s losses….but look – expect volatility to remain elevated – do not overreact to changes in sentiment over the next 3 months….After all the chaos and calls for an emergency rate cut meeting – Kansas City Fed President Jeff Schmid told us that the is ‘not’ ready to support a rate cut with inflation above target!!! Richmond Fed’s Tommy Barkin is in the same place – essentially no need to rush!  Here we go again…. Swaps traders are also reconsidering their ‘aggressive’ fed easing bets…. I mean there were some that were calling for a 1% cut in September and then 2 more cuts in November and December.  At one point they were betting on a 60% chance of an emergency FED meeting this week! Talk about hysteria!

European markets are all higher…. up about 0.4% across the board.

On Wednesday evening the S&P closed at 5,199 – last night it closed at 5319 up 120 pts…. Stay tuned – the chaos is not over……the recent moves are a stark reminder of how quickly it can all change…

Time for a Grey Goose Martini

For this you need: Vodka, Ice, a shaker, dry vermouth, 3 Blue Cheese stuffed olives and a bit of the olive juice to make it a ‘little dirty’.

You order this – this way – “I’ll have a Grey Goose Martini on the rocks, shaken NOT stirred, with 3 blue cheese stuffed olives - a little dirty” with a glass of ice water on the side.

Stay safe… see you on the other side…