(Justin Vaughn, Editor, Options Trading Report)
Labor continues to stymie recession fears, as 335,000 new jobs blew away market estimates in May, as announced by the Labor Department Friday. Indexes were all up significantly, with the Dow Jones Industrial Average exploding for 700 points, the largest gain in 2023. Both the Nasdaq Composite and the S&P 500 followed suit, up 1.1% and 1.5% respectively, by Friday’s close. Investors and traders relished in the good news, (along with inflation falling) with brisk buying in nearly every sector, with value and blue chips leading the charge. “Investors know we’re in the latter innings of the game,” regarding interest rate increases,” said Ronald Temple, chief strategist at Lazard. My view of the risk of recession has definitely gone down in the last four to five weeks,” he said.
Monday’s markt was lack-luster, as investors and traders were looking for reasons to ‘jump-in,’ as the AI spark seemed to run out of steam. More sour news released by the Institute for Supply Management, that the “services sector of the economy” expanded slower than economists had predicted, further dampening market enthusiasm. The two-year treasury skidded from 4.501% to 4.48% while the 10-year finished at 3.691%, giving little solace to income seekers. The market creeped higher on Tuesday as signs of a ‘bull market’ edged the S&P 500 higher, breaking a long stretch of the bear. As the S&P 500 nudged closer to bull territory, the indexes reacted mildly, with very soft gains, and lots of peaks and valleys. A note of negative news jolted Wednesday’s session, with Canada unexpectedly announcing a interest rate hike-the first after a three month pause, surprising many. Also China’s exports fell 7.5% from year to year. More signs that global economic growth is slowing.
All three indices were positive as Thursday’s market finished, with the S&P 500 now breaking into the ‘bull’ territory after gaining constantly since October 2022. Technology stocks led the way, lifting the market higher. The Federal Open Market Committee will convene next Tuesday, with the general feeling amongst economists, strategists and the street that the Fed will not raise rates, the first cessation of hikes since it started last year.
Attacking the Crypto Industry…Gary Gensler, Chair of the SEC, has long warned that the crypto industry is an unregulated sector, operating with ‘no rules.’ Recently targeted CoinBase, the leading crypto exchange, is presently being investigated by the ‘enforcement division’ of the SEC. Mark Palmer, an analyst at Berenberg Capital Markets, said Coinbase “is between a rock and a hard place. Coinbase is now facing a situation where it has to defend in court most of its operations and its only alternative is to pivot, which is extremely difficult,” Palmer said. Coinbase, the second crypto trading company was targeted Tuesday, while Binance, the largest crypto trader in the world, was sued by the SEC, again seeking stronger regulations in securities trading, and the handling of cash. Coinbase does 80% of its business in the U.S., trading many crypto companies, which the SEC claims are not properly registered in the U.S. Bitcoin and Erhereum, both of which have fallen with the SEC investigation are the two stalwarts in the industry. Hundreds of smaller crypto companies, many of which have very low valuations have fallen as the ‘heat’ is turned up.
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RUMBLINGS ON THE STREET
Ross Mayfield, investment strategy analyst at Baird, WSJ “We believe the AI hype is far more justified than some of the other tech-type cycles, such as cryptocurrencies and nonfungibles,” said Mr. Mayfield.
Elon Musk, CEO TESLA, from a readout of a meeting with China’s foreign minister, Barron’s “The interests of the U.S. and China are intertwined, like conjoined twins.”
Tom Essaye, founder and author of Sevens Report, writing on Friday, Barron’s “Economic data on Thursday was positive for stocks and bonds because it showed a sudden drop in some inflation metrics while growth stayed largely stable, and that’s essentially the Goldilocks economic scenario for stocks at least initially,” he said.
Carl Tannenbaum, chief economist for Northern Trust, WSJ “I certainly did not think the labor market would remain this strong for this long.”
Justin Wolfers, Professor of Public Policy and Economics at the University of Michigan, WSJ “I don’t think there’s any chance we’re in a recession,” he said.
Eric Diton, president and managing director of the Wealth Alliance, an investment advisory firm, WSJ “The reason I’ve been bullish, more than any other reason, is that everyone is so negative.”