Stocks surge as NFP report sparks risk-on rally, while bond yields and Oil surge amid market uncertainty

• NFP report came in strong, but did it really?

• Bonds came under pressure, sending the 10 Yr. above 4%.

• Oil rose, Gold falls, and the Dollar rose.

• Earnings kickoff on Friday.

• Try the Pork Chop Pizzaiola

Stocks rallied hard on Friday after a much ‘stronger than expected’ September jobs report confirmed that just maybe we won’t have a landing at all or that it will be even softer than they expected…..….or maybe it’s just another one of those ‘one off’ reports that will be adjusted downward next month. In either case, it was what it was and the algo’s and trader types went Risk On taking stocks higher.  Bonds and gold lost ground while the dollar and oil gained ground.

The Dow added 342 pts or 0.8%, the S&P up 52 pts or 0.9%, the Nasdaq up 220 pts or 1.25%, the Russell gained 33 pts or 1.5%, the Transports rose 69 pts or 0.5%, while the Equal Weighted S&P added 54 pts or 0.75%. 

The NFP report showed that we created 254K new jobs – well above the expected 150k – which while strong, now confirms that the FED must take another 50 bps cut off the table for risk of overstimulating the economy (again)…Swaps traders are now pricing in a 25 bps cut in November down from the 50 bps cut early last week.

Now there are some economists out there that are saying ‘not so fast big boy’ the number is NOT what it appears. Mohammed El-Erian is one while Marko Bjegovic is another.  Marko (@mbjegovic)–is  CEO at Arkomina and a macroeconomist and he points out that the ‘seasonal’ factors were the highest on record and that this number will be revised downward in future reports to reflect reality…estimates range from a 100k downward revision to as much as 300k downward revision…oh, boy….Ouch,  Only time will tell.  

The report supposedly confirming that resilience of the economy – while the jobs created number blew the roof off, Unemployment ticked lower at 4.1%, and Average Hourly wages m/m and y/y both came in stronger than expected up 0.4% and 4% respectively…. rising FASTER than the rate of inflation.

Those wage increases only going higher once the ‘contract’ gets priced into the equation….the contract negotiated by the Longshoreman and the USMX – the longshoreman saw a 62% wage increase in their 6 yr. contract….after the Biden/Harris administration put their hand on the scale – forcing USMX to ‘make a TEMPORARY deal’ ahead of the election (TEMPORARY IS THE KEY WORD).

…. Now, while that wage increases sounds BIG and it is, the contract was only extended thru January 15th while they try to hammer out the ‘details’….so, all they have done is ‘kick the can down the road’.  This strike is over for now, allowing that issue NOT to be an issue for Kammy, but it is by no means final, by no means does it take another strike off the table….…..and the union still has a lot of demands to settle (think benefits/health care/ vacation days/overtime wages etc.) before this becomes final but the big one is the use of automation in the ports – the union wants none of it, while the industry is demanding more of it.

Ports around the world all use some level of automation…. Tuas Port in Singapore is the worlds largest fully automated terminal and guess what?  It opened last week.  In this country – the Los Angeles and the Long Beach ports are fully automated while 3 of the east coast ports are partially automated…The union wants to try and stop progress using automation and I can tell you as someone who lived thru the automation of the capital markets – it is NOT happening…Automation is here, so get used to it, change with it, stop the fighting, because you are going to lose, the pressure is too high and that 62% wage increase you negotiated, will only give fuel to the fire…. But that’s another story.

So, after the news hit the tape – while stocks rose, bonds got whacked, the TLT fell by 1.25% and the TLH down by 1.2%.  The AGG lost 0.7%. This all happening after the algo’s adjusted their rate hike outlook….the rally in bonds has been driven by the expectation of much lower rates….and Friday’s NFP reports suggests that the ‘much’ part may not be happening (unless of course Marko’s prediction is correct) ….so the 50 bps cut priced into the November meeting has now been repriced as a 25 bps cut with some calling for no further rate cut at this time..….thus the losses. 

And those losses sent bond yields higher…the 2 yr. rose 20 bps from 3.72% to end the day at 3.92% and this morning it is up another 7 bps at 3.99%, while the 10 yr. shot up 12 bps from 3.84% to end the day at 3.96% and this morning it is up another 4 bps at 4.01%....The last time the 10 yr. traded above 4% was on August 8th.  2 yr. & 10 yr. rates above 4% will once again put pressure on stocks as nervous investors will choose to lock in 4% rates for some portion of their money.  Futures are lower this morning – more below.

Oil continues to shoot higher - Friday rising by 1% to end the day at $74.45 and overnight it is up another 2.5% at $76.20 as the mid-east conflict continues. Options traders are now pricing in $100 oil by November…. Bullish bets are surging with November 100 call options seeing their highest open interest on record. Oil is now up 17% off of the September lows and has now broken thru all 3 trendlines…putting the July high of $81.75 in play.

Now $100 is quite bullish and that would suggest that the conflict in the mid-east explodes – something I do not see at the moment.  Today marks one year since Hamas attacked Israel – so the tension is even higher…and while neither side (Israel, Hamas and now Hezbollah) are major oil producers, the options market players are betting that the crisis will broaden out dragging other countries in the region to get involved.  So, sit tight.

The VIX which has surged higher in the past week is up again by 2 pts or 10.7% this morning as the angst builds.  Angst driven by the mid-east conflict, angst driven by the US election, angst driven by the start of earnings season this week and angst driven by more economic data that could throw cold water on the latest jobs report.

Gold lost ground on the latest report, because it suggests that rates may not go lower in the near future- when the NFP  report came out – gold plunged – falling $30 in the mins after 8:30 am….before analysts had a chance to opine on the report…and when they did – gold surged trading as high as $2690 before settling down $6 at $2673/oz.  This morning Gold is up $4 at $2676 as the analysis continues…. Gold remains in the $2650/2700 trading range until we get more clarity on the FED’s next move.

US futures are down…. Dow futures -190 pts, the S&P’s down 31 pts, the Nasdaq down 135 pts while the Russell is down 7 pts. – this after everyone had the weekend to consider the implications of the latest NFP report and what that means for monetary policy.

Aside from the big bank earnings that begin on Friday the 11th, we have the 2 latest inflation reports to deal with. Thursday brings us the September CPI report, which is expected to show a slowing pace of inflation. +0.1% m/m and +2.3% y/y on the top line and +0.2% m/m and 3.2% y/y Ex food and energy.  PPI is due on Friday -and that is inflation at the Producer level and that too is expected to show a declining number m/m and y/y on the top line while PPI ex food and energy is expected to tick up slightly.  0.2% m/m and +2.7% y/y.  Neither of these reports – if they come in as expected – will do anything to change the narrative. Remember – JJ told us that he is more focused on the labor market now, not inflation.

European markets are mixed…. France and Germany lower, Italy flat, while Spain and the UK are both up a bit.  Eurozone retail sales came in +0.2% over the prior month but in line with the latest poll.  But ongoing analysis of the next US move and the ongoing conflict in the mid-east are weighing on investor optimism.

The S&P closed at 5751 – up 52 pts.  Leaving us below all-time closing high of 5762, but clearly hitting some resistance.  The number to watch now is 5674 – last week’s low.  The weakness this morning will not test it, but any further analysis of Friday’s number and the FED’s next move could clearly cause the algo’s /traders and investors to change their minds.

Speculation over what the earnings season will bring is now top of mind….as investors/traders and algo’s will start to respond to what the guidance looks like. Companies that miss the number will be properly punished for not fore warning…while companies who did forewarn and miss will be rewarded…. Why?  Because they have already punished them.  Unless they miss and then give weak guidance…then they will get punished again.

In the end –Successful investing is a marathon, not a sprint, Remain focused on the plan.  Talk to you advisor.  Click on the link to send me a message – I’m happy to discuss.

Pork chop pizzaiola

Just like its sister recipe - Steak Pizzaiola or Chicken Pizzaiola - this is a hearty, full bodied dish that can be eaten all by itself enjoyed with a glass of Chianti or vino di tavola (table wine)....no need to go over the top - it's all about enjoying the moment - 

You will need:  Thick cut Pork Chops on the bone - (about 3/4" thick), Olive oil, Oregano, garlic, onions, red and green bell peppers, can of crushed tomatoes (not puree), some red wine, salt and pepper.... **crushed red pepper flakes (optional).

In a saucepan - heat olive oil and add crushed/sliced garlic and move it around for a couple of mins until it is nice and golden.... add a sliced white onion and julienned bell peppers - turn heat to medium and cover.  When the onions and peppers are soft (about 5 mins) add the crushed tomatoes, oregano and *red pepper flakes.  Turn heats up and bring to a quick boil then reduce heat to medium.  Add red wine (about 1/2 cup) salt and pepper and let simmer and thicken up.... about 10 / 12 mins.

Next - rub the chops with olive oil, salt and pepper - do not drown the chops in oil - just enough to massage the chops and prepare them for the skillet. Heat skillet (high) and add chops (if you have a ribbed skillet this works best) You can sear for about 4 mins then turn over and continue cooking for another 4 mins.   Turn heat down to med low - then add the chops to the tomato sauce and peppers. - cover and simmer for another 10 mins.  This should give you a nice medium chop - If you prefer you can let simmer longer for more well done.  

When done - remove chops from skillet and arrange on plate.  Next - stir the sauce in the skillet pan to deglaze - making sure to scrape the pan for any bits left behind.   Spoon sauce over the chops and serve immediately.