Fed Williams

There was lots of noise in yesterday’s session, including non-stop scuttlebutt about whether tariffs would be levied or delayed. By the end of the session, reports of delay put a spark into the market that saw the Dow Jones Industrial Average rocket to 25,800 +261 points before settling down to 25,720 at the closing bell.

Lost in the action were comments from New York Federal Reserve President John Williams that dovetailed with recent comments from other Fed officials. It also dovetails with my theory, where the Powell-led Fed is determined to prevent a recession. It’s a lofty goal, which alters the approach to policy and makes the Federal Open Market Committee (FOMC) more like police officers than firefighters.

It’s essential that the Fed is ready to take on a greater role in helping the economy grow rather than saving the economy after its tanked.

Topic	Thoughts
Inverted Yield Curve	“Not an Oracle”
Low Inflation	“Pressing problem”
Low Neutral Rates	“Here and they’re here to stay”

PBOC injection

Williams’ comments came the day after China’s central bank pumped in $72 billion to provide cash as a medium-term funds rollover. The People’s Bank of China (PBOC) has pledged to provide liquidity for small banks, but they are also being encouraged to make riskier loans.

The command of central banks and the ability to force lending are advantages China’s President Xi enjoys that President Trump doesn’t, but perhaps the Fed will step up for other reasons than the trade war.

Becoming Ordinary

Don’t look now, but the market rally is becoming a run-of-the-mill “good” year, rather than the explosive year that saw mind-boggling returns through the first four months. That torrid pace would have given us a year for the record books if it was maintained. Ironically, it’s the investors that just dump a portion of their paycheck into the market and “never looked” that assumed such a move was possible or somehow ordinary.

I brought this up because this rally needed to be tested.

This is the kind of test with several issues from trade, U.S. economic concerns, and the global economic slowdown that could pick up the kind of octane that sent stocks to the moon. We’ll get closer to some answers today when the administration discusses Mexico tariffs and when the jobs report is released.

As it stands, this is still an impressive year:

• 409 of the S&P 500 higher
• 199 stocks are up 20% or more
• 146 stocks are up 10% or more
• 199 stocks are up 10% to 19.99%

When will NASDAQ Make a Stand?

This is still a rough week for the NASDAQ Composite, which continues to be the best performing large equity index but has stumbled big time this week. I liked the action in Alphabet (GOOG), which opened lower, but finally reached the point where buyers stepped in to lift it higher into the close. 

High Beta stocks are more volatile than the general market; they’ve led the NASDAQ into the stratosphere, but when they turn lower, it’s also an outsized move.

Today’s Session

The highly anticipated May jobs report was much lower than expected, adding 75,000 jobs compared to the estimates of 180,000.  April was revised lower to 224,000 from 262,000 and March to 153,000 from 189,000.  The unemployment rate remained at 3.6%.  Labor for participation was 62.8, and wages were up 3.1% slightly below the expectations of an increase to 3.2%.

Private sector added 90,000 jobs.  Professional and Business Services +33,000

• Healthcare +16,000
• Construction +4,000

Retail had the greatest decline, losing 7,600 between April and May.  The other major industries showed little change. Government jobs declined by 15,000.

While one report doesn’t indicate a trend, trade tensions, tariffs and slowing global growth are showing signs of impact on the economy.  This report adds yet another data point to support a potential rate cut, sooner rather than later.

The market is embracing this report and all the major indices are firmly in the green this morning.

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