The day began with increased saber-rattling by Chinese officials ahead of the highly anticipated meeting with the White House Economic A – team. Reports that China has stopped buying soybeans, and might sell U.S. treasury bonds, coupled with increased concerns about the U.S. economy, saw the stock market stumble out of the gate and lurch into free-fall mode.
Sector Performance | Today’s Session | Year to Date |
-0.20% | -1.40% | |
-0.45% | +4.50% | |
-0.18% | -13.82% | |
-0.50% | +1.94% | |
-0.76% | -2.72% | |
-0.92% | -1.92% | |
+0.46% | -5.83% | |
+0.65% | -6.11% | |
-0.06% | -5.98% | |
+0.35% | +3.58% | |
-0.14% | -2.52% |
Then, the rebound began, and it was led by names that have become proxies for the China trade skirmish and conventional wisdom that the economy and corporate earnings have peaked.
Boeing helped industrial names battle back, which suggest to me smart money understands there could be good news from the China Summit. The bottom line is, the stock is super cheap, and China will buy lots of airplanes over the next decade or longer because the company makes the best airplanes in the world.
Caterpillar was impressive as well, considering the stock was slammed with a Wall Street downgrade before the open.
Overnight, reports portray a meeting between officials on both sides as cordial, and even some agreements, although several lines in the sand drawn before the meeting haven’t been erased, yet. That said, the U.S. has an 8-point plan that covers more than trade.
As I’ve pointed out, Americans are sleepwalking to the surge in military and technology prowess of China. The country’s China 2025 plan is an ambitious attempt to usurp America in technology and productivity, which will also pave the way for the longer-term goal of being the world’s reserve currency.
While this is happening, the smartest folks in the room (they will tell you that themselves) think it’s a wonder we export our silver (money) in return for stuff that will be disposed of soon thereafter, but we should cheer because that silver comes back to America in the form of investment. In other words, for the right to essentially buy cheap plastic stuff, we are allowing others to own our businesses.
Are cheap flat screen TVs really worth all of that?
Today’s Session
Nonfarm Payrolls were relatively weak for April with rather modest wage growth. Payrolls increased by 164K in April, below the expectations of 193K. In yesterday’s Afternoon Note, it was noted that the ISM Non-Manufacturing Employment Index dropped from 56.6 to 53.6 and may be a harbinger for a lower Payroll number today. Labor shortages may start feeding into higher wage growth as employers offer incentives to attract labor. Surprisingly, average hourly earnings rose by only 0.1% month-on-month and 2.6% year-on-year. This was below expectations of increases of 0.02% and 2.7%, respectively.
March numbers were revised upwards from 103K to 135K. The Labor Participation rate was 62.8 and the unemployment rate fell below 4%, for the first time since 2000, coming in at 3.9%. Furthermore, Black unemployment rate was 6.6%, the lowest since the report began tracking this in 1972.
Job gains were seen in professional and business services, manufacturing, health care, and mining.
• Employment in professional and business services increased by 54,000
• Employment in manufacturing increased by 24,000
• Health care added 24,000
• Employment in mining increased by 8,000
The U6, or what some call the real unemployment, dropped to 7.8%, the lowest since 2001. With the tightening labor shortage, this group could represent a pool for additional labor as discouraged workers return to work.
Initially, the U.S. dollar sold off on the payroll report, as traders priced in a slower rise in interest rate. That rally was short-lived, and the dollar is now stronger than before the report. This is pressuring equities at the open.