It was a back-to-back session that saw buyers emerge late in the day to get ‘long’ before the closing bell. What made yesterday particularly interesting was buyers got ‘long’ before today’s jobs report.
Nine out of eleven S&P 500 sectors were higher, led by Financials and Energy. There was a small nudge in bond yields. But I think the session was all about buying the stuff that’s been under pressure, including the so-called reopening trade.
Reopening Trade Sees Past Delta Variant
Penn National Gaming (PENN) pulled off a big deal that initially sent shares lower. But it’s clear investors hope the Delta variant will follow the same trajectory as it has in other countries:
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Internals
Market breadth was not too shabby, save for the very light volume. New highs were picking up momentum – that’s a trend that can be contagious.
Market Breadth | NYSE | NASDAQ |
Advancing | 2,241 | 3,035 |
Declining | 1,087 | 1,333 |
52 Week High | 186 | 176 |
52 Week Low | 53 | 107 |
Up Volume | 2.69B | 2.90B |
Down Volume | 1.07B | 1.14B |
Value Vs. Growth
For a while, it was nip and tuck, then value began to take the lead. The last three months have seen a conclusive shift back into growth, as investors are trying to make hay while the sun shines:
- Growth: +11.40%
- Value: +0.96%
Earnings Begin to Matter
Don’t look now, but earnings beats are beginning to move stocks higher. This is great news as each day, the stats get even more remarkable.
Earnings Scoreboard 427 Reports | Revenue | Earnings |
Beat | 87% | 88% |
Blended return | 23.4% | 92.9% |
Blended estimate Jul 1st | 18.5% | 65.4% |
Blended estimate Apr 1st | 15.2% | 54.0% |
Blended estimate Jan 1st | 12.7% | 45.7% |
Portfolio Approach
There are no changes to the sector weights in our Hotline Model Portfolio.
Today’s Session
Jobs data came in strong, but there are some issues for the nation and with respect to Fed policy. Total non-farm payrolls climbed 943,000 and June was revised higher to 938,000 from 850,000.
- Private employment 703,000
- Government 240,000
To see the chart, click here.
Worrisome
- Total labor force participation 61.7 from 61.6
- Construction 11,000
- Manufacturing 27,000
Black American Labor Conditions
Federal Reserve Chairman Powell has talked about an economy where the same tide lifts all boats and the goal of the Fed to make sure there is greater labor gains for Black and Hispanic workers. This morning’s report will get favorable media coverage, as some will point out the sharp decline in Black unemployment.
They will not say why.
- Labor force -249,000
- Employment to population 55.8 from 55.9
- Employed 18,757,000 from 18,769,000
- Participation rate 60.8 from 61.6
While the media will be dishonest about the month, the Fed will take note of the numbers…which were very problematic.
Wages
Overall wages +0.4%, which beat consensus of +0.3%, but were probably eaten up by inflation resulting in yet another decline in real wages.
Employment – Population Ratio
- 58.4 from 58.0 but still down 2.7%from February 2020 level
Participation Rate
- 61.7 from 61.6, this key metric has been ranged bound between 61.4 to 61.7 since June 2020
Conclusion
I do not see this forcing the Fed’s hand, which might be why the market didn’t get hit when the numbers crossed the tape.
Much is being made over the ten-year bond yield hitting a double bottom at 1.13% and now racing higher.
It will change the style back to overweight value to growth, which has had an amazing run, lifting the NASDAQ to an all-time high.
