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Afternoon Note

Bad News is Good News

By Charles Payne, CEO & Principal Analyst
6/7/2019 1:02 PM
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The market is looking to break its  6-week losing streak.  The Dow is  up for the 5th consecutive day and is on pace to have its best week of the year.  Stocks are rallying on the weaker than expected May jobs report, with only 75,000 new jobs created.  The report piggybacks this week’s ADP report, which saw the smallest increase in private-sector employment in nine years (added 27,000 nonfarm jobs in May) and was weakest growth since March 2010.

Investors believe the weaker data supports the case for the Fed to cut interest rates, and soon, on fears that the U.S. economy is softening as trade tensions between the U.S. and China, and potentially Mexico, continue. 

The Bond market appears to have gotten it right on interest rates when the yield curve inverted (short term higher than long term).  There is no sign of inflation and stock market is pricing in an even higher probability of a Fed rate cute in July and September.  The benchmark 10-year U.S. Treasury slid to 2.076%.  While the markets like it, rate sensitive Financial stocks are getting hit, and is the worst performing sector today.  So for now, bad news is good news. 

S&P 500 Index

+1.18%

Communication Services (XLC)

+0.73%

Consumer Discretionary (XLY)

+1.64%

Consumer Staples (XLP)

+0.60%

Energy (XLE)

+0.15%

Financials (XLF)

-0.03%

Health Care (XLV)

+0.91%

Industrials (XLI)

+0.60%

Materials (XLB)

+0.43%

Real Estate (XLRE)

+0.18%

Technology (XLK)

+1.46%

Utilities (XLU)

+0.14%

 

All S&P sectors are currently up for the week.  Materials and Technology have gone from the worst performing to best performing.

Another data point, wholesale inventories, rose 0.8% in April, beating the estimate for 0.3%, while wholesale sales decreased by 0.4%.  On a year-over-year basis, total sales increased 2.7%, while total inventories expanded 7.6%. Inventory growth continues to top sales growth on a year over year basis, keeping pricing pressure at bay. 

The Dow is up over 300 points, or 1.22%.  Have a great weekend.


 

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