A tale of two markets? New record highs for the Dow Industrials. Close to unchanged for the S&P 500. Something approaching a beat-down for the Nasdaq Composite. Five S&P sector-select SPDR ETFs gained ground on Tuesday, led by four "cyclical'' type sectors, all of whom saw increases of more than a full percentage point. Money poured into Energy (XLE) , which was up 3.5% in reaction to OPEC's announcement that the cartel would raise production by the expected 400K barrels per day, while expressing little concern over potentially pandemic driven negative impacts to global demand for crude. The Financial (XLF) sector also saw an oversized benefit (+2/6%) on Tuesday as the US Treasury yield curve continued to steepen. Six sectors closed lower for the session, as both Technology (XLK) and Health Care (XLV) surrendered more than 1% for the day.
There certainly was some significant movement at the industry (beneath the sector) level. Within tech, it was yet another lousy day for the Dow Jones US Software Index, down 2.1%, but on the second trading day of the year, software was joined by the semis. The Philadelphia Semiconductor Index gave up 0.45% on Tuesday. As far as trading the tech space, I did use Tuesday's selloff to regain some exposure to cybersecurity. I am finally back in Zscaler (ZS) and increased (small) my existing long position in Palo Alto Networks (PANW) . These positions are my only current exposure to that space, are equally weighted and still at entry-level size (roughly 1/8 of my intended full allocation) as I do not think that this 2022 rotation that has potentially only just begun, is over... now that professional capital has re-engaged with the marketplace after having taken a couple of weeks off. (This means that I am maintaining some dry powder, probably through January.)
In addition, and still within tech, I found it quite interesting that the kinds of chipmakers that big tech depends upon, which tend to be Sarge faves, all broadly underperformed the industry while memory type chip names such as Western Digital (WDC) , Micron (MU) and even Seagate Technology (STX) , did very well, even forming very nice looking "hammer" one day candlestick patterns, which indicate an upside intraday reversal. This is illustrated below...
Readers will see that Micron also offered up a nice 'hammer" on December 22nd and appeared to have gotten a few bucks out of that one. Different environment. We'll see.
Elsewhere, steel stocks led the Materials (XLB) sector, and steel itself was led by Cleveland Cliffs (CLF) , up 4.1% as well as Nucor (NUE) , up 3.6%. In addition, aerospace and defense stocks led the Industrials (XLI) . Raytheon (RTX) +3.5%, Northrop Grumman (NOC) +3.0%, Boeing (BA) , +2.8%, and Lockheed Martin (LMT) +2.2% all popped as news broke that the Japanese Coast Guard had reported what appeared to be North Korea launching their first ballistic missile in two months into the Sea of Japan.
As a number of big tech names have made contact with their 50 day SMAs already in 2022, and Amazon (AMZN) in particular is in danger of losing contact with the all-important 200 day SMA, it is the Nasdaq Composite itself that has once again found, pierced, and for the day at least... found support at that 50 day line.
Traders will note that the Nasdaq has traded within a fairly disciplined channel for most of 2021, and while the lower bound of that channel has run roughly parallel, but above the 200 day line for this index, the index has clearly shown no respect for the 50 day line, and when tested, at least on the last three dips of any magnitude (all since October), this line has failed quite miserably.
Take This Job and...
Markets absorbed two macroeconomic data-points on Tuesday that expressed themselves as a bit of a surprise to economists and traders alike. First we'll take a look at The November JOLTs report released by the Bureau of Labor Statistics. The headline number (job openings) printed at 10.562M, which seems like a lot, but was a significant decline from a revised October (11.033M) print and represents a rather severe miss of consensus view which was for an increase to almost 11.1M.
It appears that 4.5M Americans quit their jobs in November, which would be a new record, would be up dramatically from 4.2M in October and would be well above the 4.1M that economists in general had in mind. That's a 3% quit rate. If I know 100 people who work, chances are that three of them quit in November. That's mind blowing and is also the highest quit rate since at least the year 2000. Another record within the record was the 1M workers in the fields of hospitality and leisure who packed it in.
The question now for economists to work on, is why. The easy answer would be that labor is broadly confident in their massed ability to gain new employment elsewhere which would further constrict participation and place upward pressure on wages. This is obviously inflationary. The nastier answer could be that as Covid infection rates started to rise in November that workers in fields where human contact is part of the job, placed a higher value on their health in an uncertain situation than on their ability to earn, which is tragic.
Hot, But Less Hot
At the same time as that JOLTs report, the Institute for Supply Management published their Manufacturing PMI survey for December. The headline number printed at 58.7, down from 61.1, and well below the 60 that Washington and Wall Street were looking for. It appeared that though manufacturers were readier, as employment increased, that upside acceleration slowed for New Orders, Production, Deliveries, Inventories and especially for Prices. Prices? Yes... Prices.
Is this a sign that inflation is slowing at the producer level? No. Remember that here, 50 is the line between growth and contraction. The "Prices" component printed at 68.2, which for almost the entirety of my career would have been a red hot print. It's just that the October print for the "Prices" component hit the tape at an absolutely ridiculous and scorching 82.4. Keep in mind that this single component has increased for 19 consecutive months as have the headline number and the "New Orders" component which is the lifeblood of any manufacturing survey.
A note penned by Zach Pandl, co-head of global FX and EM strategy at Goldman Sachs on Tuesday estimates Bitcoin's float adjusted market cap at just under $700B. According to the note, this would account for a 20% share of the "store of value" market, which is comprised of just Bitcoin and Gold. I might argue that more than a plethora of investors rely upon real estate and other hard assets as stores of value, but that is not mentioned here. Nor are other cryptocurrencies, and some of those (Ethereum) are certainly eating into Bitcoin's share of the crypto side of this market as well.
Anyhow, the note also estimates the value of gold that is available for investment at $2.6T. The note goes on to say that should Bitcoin's share of the store of value market (which in my opinion, as I have just mentioned is comprised of far more than two alternative asset types) were to "hypothetically" rise to 50% over a five year window that Bitcoin's price would increase to $100K for a compound annualized return of 17% to 18%. Okay... If gummy bears were to "hypothetically" taste like peppermint they'd be minty fresh.
I don't doubt that Bitcoin, or cryptocurrencies in general, could take further alternative investment market share from Gold or other precious metals. Those my age and older have always preferred physical gold as means toward providing protection against systemic abuse of fiat money supplies by monetary authorities. Folks a bit younger than I seem to prefer Bitcoin, for the same purpose. Neither produces earnings, pays interest or pays a dividend. Both require environmental destruction as demand rises.
I have a point to make, and a question. My point... Real estate will only become more and more scarce over time. That's the kind of thing that defines the term "store of value." My question is this. I am sure that those who invest in precious metals one hundred years after my death will hold physical gold. Can anyone holding Bitcoin make a similar suggestion? Oh, I think the asset class will likely exist in some form. Technology does not however... stand still. Cryptocurrencies are a long way from reaching even the early part of their evolution. There will be regulation. There will be some kind of adoption by the major central banks who will at some point (my opinion) work toward the elimination of independent competition. These are huge wildcards. Precious metals have a champion. Most cryptocurrencies are absolute trash. Several almost certainly are not trash. A champion though? It's way too early for that.
Economics (All Times Eastern)
08:15 - ADP Employment Report (Dec): Expecting 395K, Last 534K.
09:45 - Markit Services PMI (Dec-F): Flashed 57.5.
10:30 - Oil Inventories (Weekly): Last -3.576M.
10:30 - Gasoline Stocks (Weekly): Last -1.458M.
The Fed (All Times Eastern)
14:00 - FOMC Minutes.