Friday, July 2, 2021

Morning Note: How "The Big Money" Is Made (and, frankly, not lost)...

So, if the headlines got it right on how good this morning's jobs number was, then our view of what's driving stocks these days says they should be tanking.

Well, they're kinda all over the place (consistent with the overall nasty breadth of late) as I type: Dow down 17 points, SP500 up .25%, Nasdaq up 0.51%, Russell 2000 down 0.42%.

Looking at the sectors, the fact that tech's up and banks, industrials, materials and energy are down says the market sees this morning's data as nothing to write home about in terms of what it says about the economy. Apparently "the market" expected more.

Under the hood, payrolls rose 850k against 720k consensus expectations. Although the unemployment rate rose a smidge to 5.9%. Hours worked dipped, but we can chalk that one up to manufacturing bottlenecks due to lack of available parts and materials. The labor force participation rate stayed stuck at 61.6%. Manufacturing picked up 15k jobs, however construction lost a few. Of course the bulk of the gain showed up in leisure and hospitality. Wages were up across the board...

Asian equities leaned green overnight (although China got creamed), with 9 of the 16 markets we track closing higher.

Europe's mostly up this morning, with 12 of the 19 bourses we follow in the green so far.

U.S. major averages are mixed (a little better than a minute ago [save for the Russell]): Dow up 56 points (0.16%), SP500 up 0.29%, SP500 Equal Weight up 0.05%, Nasdaq 100 up 0.54%, Nasdaq Comp up 0.28%, Russell 2000 down 0.82%.

The VIX (SP500 implied volatility) is down 6.20%. VXN (Nasdaq i.v.) is down 3.49%. 

Oil futures are down 0.64%, gold's up 0.47%, silver's up 1.37%, copper futures are up 0.48% and the ag complex is down 0.32%.

The 10-year treasury is up (yield down) and the dollar is down 0.08%. 

Led by silver, tech stocks, gold miners, solar stocks, base metals futures and consumer staples stocks -- but dragged by oil services stocks, VIAC/CBS, bank stocks, energy stocks and uranium miners -- our core mix is off 0.06% to start the day.

Clearly the last few weeks have not been friendly to the "reflation" trade. The sector action this morning is a perfect microcosm of what we've seen of late (more on that in our upcoming macro update). Thing is, those happen to be the sectors uniquely positioned for where government spending, inflation (in our view), etc., is heading and where (financials in particular) -- in a world of crazy high market valuations -- relative value exists. 

The great Jesse Livermore spoke of the folly in focusing on price action over underlying general conditions:

"...the big money was not in the individual fluctuations but in the main movements—that is, not in reading the tape but in sizing up the entire market and its trend.
And right here let me say one thing: After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight!"

Have a great day!

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