Economy Propels the Market – by Justin Vaughn

(Justin Vaughn, Editor, Options Trading Report)

Even as 272,000 jobs were added in May, surpassing expectations, markets on Friday were struggling to stay above water. Economists were expecting a slowdown of hiring with numbers slipping. The opposite occurred as unemployment edged up slightly to 4%. All three indices closed the day Friday near even, while for the month they were in positive territory. The big news Friday was the bond market as the 10-year Treasury suddenly leaped up to 4.428% after finishing Thursday at 4.280%, possibly reflecting some high tech issues. The amazing Labor Market again surprised economists as hourly wages edged higher, hitting 4.1% from a year earlier. “This has been an earnings-led recovery,” said Brad McMillam, chief investment officer for Commonwealth Finance Network. “I look at consumer confidence, and those are the two things I look at to see if the economy is going to do well,” he added.

Monday’s market was perky, positive enough to nudge the Nasdaq Composite and the S&P 500 to records, The Nasdaq was up 0.3% closing at 17192.53, while the S&P 500 closed at 5360.79, up 0.3%. So far this year the S&P 500 is up 12%, to near 5600, up a surprising 400 points, while showing no sign of easing, forcing economists and analysts, with good reason, to readjust predictions, such as…JPMorgan Chase. The 10-year Treasury yield edged up slightly to 4.468% from Friday’s 4.428%. The indices and the bond markets are all in anticipation of the announcement Wednesday of the CPI (Consumers Price Index), as all economic indicators appear that inflation is ‘cooling.’

Two more highs for two indexes…The S & P 500 and Nasdaq Composite each jumped higher up 0.3% and 0.9% respectively as the markets kept pecking away at record highs. The S&P 500 lifted to new territory, 5375.32 and the Nasdaq Composite crested at 17343.55. Coming with the CPI is the Federal Open Market Committee’s release “of its monetary-policy decision,” a highly trusted component in Fed decisions. As investors and traders brace for both releases this week an air of optimism persists, as the markets’ reaction, measured by indices activity, is upbeat.

The CPI release Wednesday was 3.3%, down from April’s price increase of 3.4%, crushing a majority of economists’ predictions and thrusting equities upward. Strong activity in high tech, including the Magnificent 7 and its followers boosted the S&P 500 and Nasdaq Composite to record highs again for the indexes. The Russell 2000 filled with smaller cap value stocks surged, up 2.6%.

Saudi Arabia, the key influencer and leader of OPEC+ agreed to continue the ‘curb’ on oil production into the fall of 2024, stabilizing prices and controlling production. Oil is presently hovering in the $78.00 a barrel range, up from a major dip two weeks ago. The ‘curb’ is OPEC+ controlled, although oil prices can still be volatile as many non OPEC+ producing nations are not cutting production, disrupting the ‘curb’ and its equation. Some oil analysts cautiously predict that non-OPEC+ production could push prices to $100 a barrel. Presently China, India and far-eastern countries are buying most of this oil, much of it Russian. According to Dow Jones Data, non-producing OPEC+ producers, such as Canada, Guyana, and the U.S. could hamper the ‘curb.’ As one oil ministers of the OPEC+ group said,…”It’s an oily mess.”

RUMBLINGS ON THE STREET

Jimmy Goodrich, a senior advisor for technology analysis for RAND, WSJ “What the CHIPS ACT is going to do is arrest that terminal decline, right the ship and put it back on a more stable path,” Goodrich said. “It might slightly increase U.S. overall chip production, but the more significant increase is going to be the relative share,” of advanced chip production.

Randall W. Forsyth, Writer of UP & DOWN WALL STREET, Barron’s “As investors look to the Fed for clues about where the stock and bond markets are headed, it is they who are increasingly providing much of the thrust behind the U.S. economy. American households’ net worth jumped by $5.1 trillion, or 3.3% in the first quarter, according to the latest data released by the Fed on Friday. More than half of that gain was accounted for by their increase in equities and mutual fund holdings. And they earned an annualized $3.7 trillion from interest and dividends in the first quarter, up roughly $770 billion from four years earlier, according to Commerce Department data cited by The Wall Street Journal.”

Carol Schleif, chief investment officer at BMO Family Office, WSJ “The biggest factor is an economy coming off a rapid boil and settling more into a steady simmer. It didn’t fall off the cliff. It surprised many pundits by not falling into recession.”

Michael Antonelli, market strategist at Baird, WSJ “It’s not rate cuts that the market is trading higher on. It’s [that] earnings are going higher.”