Yesterday, a lot of red in the largest, most influential S&P 500 names doomed the market from the opening bell. Bond yields, including the ten-year yield, edged higher during the session.

Is the Consumer Tapped or Sated?

It’s been tough sledding for retail names in the past 30 days, as many of the biggest winners in the prior 12 months have been under a fair amount of pressure.

 XLY

• Etsy (ESTY), which I think is the next Amazon, posted great earnings and made a brilliant acquisition in the past couple of weeks.
• Tesla (TSLA): According to one report, Tesla had bad news out of China as sales plunged 50%. Moreover, there are signs Ford (F) and General Motors (GM) are poised to put up a big fight in electric trucks.

Reopening: the nation and brick-and-mortar retailers are toppy. The consumer isn’t tapped, but these stocks are extended:

Done With Retail Food Chain

While the high-profile Consumer Discretionary (XLY) names are dealing with profit-taking, lower-tiered names are doing very well, including each that posted results after the close last night.

Look at the initial moves after these names posted results:

• Asana Inc (ASAN): +10%
• Tillys Inc (TLYS): +8%
• Five Below (FIVE): +7%
• Zumiez Inc (ZUMZ): +6%
• Joann Inc (JOAN): +5%

The purer retailers, including department stores and other brick-and-mortar names, have been holding up, although the chart underscores that retailers are still struggling to find that spark to breakout.

XRT

Follow the People

When you follow migration partners, you are following the money, and that’s just an open reason why Conn’s Inc (CONN) just posted its best quarter ever. The company is known for its higher-risk clientele that just happens to be getting raises in this worker crisis:

• Earnings $1.52 from -$1.95, from one year earlier
• e-Commerce: +95.7%
• Lease to own: 82.0%

Management added six new stores, including five in Florida.

Service Economy

The Institute for Supply Management (ISM) Service number of 64.0 established an all-time record high. Prices also climbed to a reading of 80.6. All in all, it is a powerful report, but higher prices make the market uneasy.

ISM Services

Commodities Reported Up in Price:

Aluminum Products (2); Beef; Chicken; Computer Products; Construction Materials (3); Copper; Copper Wire (2); Corn; Corrugated Boxes (2); Diesel (6); Electrical Components (4); Electronic Components (2); Equipment; Exam Gloves; Food; Freight; Fuel (5); Gasoline (6); Gasoline-Related Products; Integrated Circuits; Labor (6); Labor — Construction (3); Labor — Skilled; Labor — Temporary (5); Logistics Services; Lumber (5); Lumber Products; Maintenance Services; Metal Products; Nitrile Gloves (2); Oriented Strand Board (OSB) (6); Packaging Materials; Pallets; Pharmaceuticals; Plastic Products; Plywood; Polyvinyl Chloride (PVC) (2); Polyvinyl Chloride (PVC) Products (9); Resin Products (5); Rubber-Based Products; Steel (9); Steel — Carbon; Steel Products (5); Transportation; and Trucking Services.

Note: The number of consecutive months the commodity is listed is indicated after each item.

Commodities Down in Price: No commodities are reported down in price.

Today’s Agenda

It’s all about the jobs report, which is a complete toss-up. A strong number could spook the Street, but would be great for the economy despite the possible investor hysterics for stocks. I am concerned the worker strike continues.

7:00 am    Fed chair Jerome Powell speaks on climate change                                          

8:30 am    Nonfarm payrolls                     May     671,000          266,000

8:30 am    Unemployment rate                 May      5.9%               6.1%

8:30 am    Average hourly earnings          May      0.2%               0.7%

10:00 am Factory orders                           April     -0.2%              1.1%

Portfolio Approach

Yesterday, we took profits on two names. We added a new position to Consumer Discretionary this morning.

Today’s Session

Another disappointing jobs report, as the private sector only created 492,000 jobs against consensus of 600,000.  The overall read of 559,000 was also a big miss as whispers were significantly above consensus of 671,000.

Highlights and Red flags

• Labor force -53,000 bringing participation rate to 61.6 from 61.7
• Construction -20,000
• Retail -5,800 (down 30,200 in April)
• 16.6% teleworker
• 7.9 million unable to work as employer closed or lost business
• 2.5 million prevented from looking for work due to pandemic
• Wage change m/m +0.5% consensus +0.2%
• Wage change y/y +2.0% consensus +1.6%

The U3 unemployment rate dipped to 5.8% but for the wrong reasons.  The most important thing is how the rate of improvement has slowed.

There are 7.1 million fewer workers now than Feb 2020 and 3.5 million fewer workers in the labor pool than Feb 2020.

U3 Unemployment Rate

The news puts the Fed at bay although there are questions over rising wages which are not keeping up with inflation.

Comments

Leave it up to the liberal dems to screwup a great economy. Have they blamed it on President Trump yet? They will. Thanks Charles. You are great on Making Money! Our favorite fox program. Lorin K on 6/4/2021 10:47:36 AM

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