NFP fever: Fed caution, quantum pop, and delta soars

• Countdown to the NFP report.

• FED Heads signal ‘caution’!

• Oil up, Gold up & the Quantum Stocks are UP!

• Delta kicks it off with a BEAT, ‘2025 will be a GREAT year!’

• Try the Pan Roasted Chilean Sea Bass.

So while equity markets were closed yesterday, the bond market was not – yet the bond market didn’t do much of anything – 2 yr treasuries ended the day yielding 4.26% while the 10 yr yield has managed to come off the highs seen earlier in the week….this morning the 10 yr is yielding 4.69% - down from Wednesday’s 4.726%. Now, while investors got a break from the hectic trading day, a handful of FED officials were busy offering their insight into what’s going on at the bank. And to confirm – just so we all hear the same thing – they confirmed that the central bank will ‘likely hold rates at current levels for an extended period, ONLY cutting again when inflation meaningfully cools’.

Suzie Collins – Boston’s FED President told the crowd that “a slower approach to adjusting interest rates is merited now as officials confront considerable uncertainty”.

Mishy Bowman reiterates that point saying that “FED policy is well positioned to adjust as required to evolving conditions – holding rates at the current level for LONGER if there is little further progress on inflation” She went onto to say that “the economy is in a good place but that progress on inflation will likely be slower this year than previously anticipated.” In the end – she prefers a more cautious and gradual approach to adjusting policy.

Kansas City’s Jeff Schmid thinks that rates may already be close to neutral – a level that neither stimulates nor slows the economy.

Philly’s Patty Harker said that he is prepared to make additional cuts – but the timing depends on what the data suggests. He was clearly more dovish than the other three. In any event – my sense is that they chose clear and concise words to use….’meaningfully cools and ‘considerable uncertainty’, ‘holding longer’ and ‘close to neutral’.

These comments are similar to what we heard from Fed Governor Lisa Cook and Atlanta’s Raffi Bostic last week – they too, leaned hawkish – which to me suggests that rates will remain unchanged thru the 1st qtr. unless the economy suddenly starts circling the drain – something that does not appear to be happening. In fact – I am in the camp that we won’t get any rate cuts this year and while I may appear to be in the minority, I suspect the minority will become the majority.

We have discussed this – there is a lot going on in the next couple of months – the inauguration, new cabinet picks, new tax policy, new regulatory policy and the ongoing conflicts around the world that just might come to an end sooner rather than later. In the end – the Fed is cautious as all these new changes take root. The combination of new policies, the growing deficit, an ongoing strong consumer and a robust labor market could result in higher interest rates for the foreseeable future.

In fact – that is what the bond market appears to be saying as well. Recall, 10 yr yields were 3.6% in September – when the FED made that bold 50 bps cut…followed by 2 more 25 bps cuts for a total of full 1% move lower – today the 10 yr is a full 1% higher - kissing 4.7% and likely to go higher, so let’s hope that the FED is paying attention. The bond market is trying to ‘tell us something’ – who is listening?

Remember - The markets are now pricing in one rate cut in 2025 (July), with a 60% chance of a second – while at the same time – there is a 25% chance of a rate HIKE.

Ok – so back to today’s KEY data point…. the NFP report. We expect 165k new jobs – which is below recent reads, we expect Unemployment to remain at 4.2%, and we expect that Avg Hourly earnings m/m +0.3% and y/y of +4%. We will also get the U of Mich sentiment surveys…. Not expected to reveal much.

So here is the deal….

If the Nonfarm Payrolls (NFP) report is stronger than expected, it signals that the U.S. labor market is robust and growing at a faster pace than anticipated and here is what we can expect markets and analysts to say:

A stronger NFP indicates more job creation, suggesting that businesses are hiring due to optimism about the economy. This reflects economic strength and resilience. That has Hawkish Implications for the FED especially if inflation remains a concern. On the other hand, if inflation is not a concern for them (which we know it is) a strong report could also suggest that the economy can naturally handle higher interest rates. Remember – the stock market can function fine with 5% rates IF the economy remains robust. The problem will be 5% rates with a struggling economy.

Stocks? It would be a mixed reaction:

Positive for Consumer-Driven Sectors: Sectors like retail, discretionary spending, airlines, travel all may benefit if more jobs boost consumer confidence and spending. It would be negative rate-sensitive sectors: Higher interest rates resulting from a strong NFP can pressure sectors like technology and utilities as well as SMID’s (Small and mid-caps) which are sensitive to borrowing costs.

And the Bond market? Strong job numbers often lead to higher treasury yields as investors anticipate a tighter monetary policy. Bond prices will fall, and yields will rise. (Something we are already seeing.)

A strong NFP report could ignite inflation expectations. If strong job growth is accompanied by rising wages, it will signal higher inflationary pressures, which would reinforce the Fed's inclination toward rate hikes.

A weaker report would suggest that the US labor market is weaker than expected. - So, you can just reverse all those arguments. Consumer driven sectors would be weak while Tech, Utilities and SMIDS would benefit. Strap in – the report is just mins away!

Oil pushes higher - part of it is more technical in my opinion and part of it is the fact that US stockpiles have fallen (think winter demand across the country) and the commentary surrounding China, Iran and Russia all playing a role in trading. (Chinese economic strength (or weakness – depends on who you talk to) and sanctions on Iran and Russia). This morning oil is UP $2 at $76.02.

On Wednesday I told you that we were in the $72.60/$76 trading range…. we are now kissing the upper band…where I think we will struggle just a bit. If they push it higher – then a move to $80 would NOT surprise me. If it fails – then a move back to trendline support at $72.60 would make sense.

Gold also made a run for it……pushing up to and thru $2700. Now demand being driven by hopes for a weak NFP report (think lower rates) and if that is not the case, then then the argument becomes a hedge against inflation. The thinking being that a strong NFP report and the administration has the ability to plant the seeds for a new round of inflationary pressure. Technically -gold is now up and through the trendlines and could likely challenge the December high of $2760.

US Futures are slightly negative. Dow futures down 10 pts, S&P’s down 5 pts, Nasdaq is down 50, while Russell is down 3 pts. Delta airlines just reported and apparently the blew the door off the plane as they beat sales and earnings estimates and raised their forward guidance! The stock is trading up 5% in the pre-mkt at $64.65/sh. Eddy Bastian – Delta CEO all smiles as he expects 2025 to be ‘the best financial year in our history’. OK – so think about it – Delta is an airline, it’s a consumer discretionary type stock (vs. non-discretionary), and if he is planning on the best year in its history, which would suggest that the consumer is STRONG – capisce?

As you know – officially earnings season begins on the 15th with the release of JPM – the first DOW stock to report….and we’re off!!!

I still think that the first quarter will continue to be volatile as investors, traders and algo’s digest all the crosscurrents that plague the markets…. Earnings start next week, and the focus is on the C-suite – and if the C-suite mimics what Eddy just said, then we are in for a good quarter.

European markets are mixed – the UK and Spain both a bit lower while the rest of the group is just a bit higher by about 0.4%. British bonds pushing to their highest levels in ‘decades’ This morning Britain’s 10 yr Gilt is yielding 4.845%. Additionally, concerns are mounting over the new fiscal policies that will see new taxes, higher taxes and business costs rise all while economic data weakens and inflation remains ‘sticky’.

The S&P ended Wednesday at 5919 – up 10 pts. We remain below the trendline at 5944. The action will be all about the NFP and then about what the FED heads said and how it now relates to what the NFP suggests. I also expect to see the quantum names - that got absolutely crushed on Wednesday after Jensen threw them all under the bus - recover some of those losses…. In the pre-mkt - IONQ +12%, QUBT +10%, QBTS +6%, & RGTI is up 6.5%.

Remember – stay focused, manage your risk, stick to the plan. History demonstrates that a well-planned, long-term focused and diversified financial plan can withstand virtually any market surprise and related bout of volatility.

Pan roasted chilean sea bass

You will need: 1 lb. of sea bass, olive oil, butter, onion, White Wine, Fresh wild mushrooms, Chicken stock, s&p, and chopped parsley for color.

Prepare by chopping the onion, slicing the mushrooms and chopping the parsley. Have all other ingredients out on the counter to ease the process of creating this dish....

Preheat the oven to 450 degrees - this is important to make sure that the oven is ready to receive the fish without having to "heat up".

In a sauté pan - heat the olive oil and the chopped onion - cook until soft and translucent. Turn the heat to high to make the pan really hot - then remove the pan from heat and deglaze with 1/4 cup or so of Wine - When the wine has cooked off add the sliced mushrooms and about a tblsp of butter. Reduce heat to med and cook until tender.

Now add the chicken stock - maybe 1/2 cup or so....and s&p... let it cool down.... just so it thickens a bit....

In another sauté pan heat up a bit more olive oil...season the filet with s&p and add to the pan skin side down for about 5 mins...you want the skin to be crispy......flip and cook for about 1 min - transfer to a baking dish and put in the pre-heated oven and roast for another 4 / 5 mins.

Warm the serving dishes and place a bed of the onion/mushroom mixture on the plate and then top with the pan roasted filet. Adorn with a bit of chopped parsley. You can serve this dish with herb/garlic wild rice and sautéed green beans. Complement with a cold bottle of Pinot Grigio - Santa Margherita, light the candles, turn down the lights.... and you are off to the races....