- The light ahead illuminated the the road
- The questions asked had but one answer
- Decisions made had a determined price
- Answers came easier as the hours, days, and weeks pass
- Plans made in response
Produced planned results
- As if
...Was littered with the debris of mayhem. Equities proved strong, for the most part last week, after riding a volatility that extended deeply into all financial markets. Currency markets, debt markets, commodity markets all felt it. The driver was macro-generated, at home and abroad. Europe feels the inflationary heat. The Bank of England increased their Official Bank Rate for the second consecutive policy meeting, as the substantial minority, four of nine, dissented in favor of a larger rate hike. The European Central Bank entertained the thoughts of tapering their asset purchase program at some point, perhaps later this year. The rapidly rising U.S. dollar finally caught a break relative to its reserve currency peers.
This put crude oil on the hot seat. WTI Crude futures might be trading around $91 as Sunday night and Monday morning collide, and that's almost off a percent and a half. Oh boy. A barrel of WTI found support just above $87 on Thursday, and hit resistance close to $93 on Friday, as the dollar valuations exacerbated a global view of OPEC+ that is more one of questionable capacity than it is of a willingness to produce.
As the week dragged on, both the ISM Manufacturing and ISM Non-Manufacturing Index results gave cause to doubt economic activity. Both surveys painted a picture of still expansionary conditions, but decelerating expansion at that, on still elevated prices. This leads us to jobs week.
Jobs & Policy
As the week that was wound toward its conclusion, the ADP Employment report for January showed seasonally adjusted private sector job creation/destruction at a -301K position. Countless professional economists lowered expectations for Friday. The While House even warned publicly that January could be ugly. We all knew that the surveys, in this case the Establishment survey had been conducted the week of January 12th, which would place it right smack dab in the middle of the post-holiday Omicron crush that had suppressed and warped results across the realm of macroeconomic data-points as the first quarter of the year got underway.
To the surprise of nearly everyone, the BLS put a print of +467K seasonally adjusted January jobs to the tape, more than 200K positions higher than the highest estimate that I had seen. The bond market reacted immediately. Then stocks went for the most part green... for the day and for the week, despite the concept that this might embolden the FOMC to get more aggressive in order to stop consumer level inflation in its tracks and keep the economy from cooking too hot.
Futures trading in Chicago are now pricing in a 33% probability of a 50 basis point increase made to the Fed Funds Rate on March 16th, and a 66% chance of a 25 basis point increase. 50 basis points are fully priced in by May with a 33% probability of the FFR rising 75 bps by then. 75 basis points are fully priced in by June and so on. In fact, this Monday morning, a Fed Funds Rate of 1.25% to 1.5% (up 125 bps from here) is priced in by year's end with an additional 25 bps tacked on by February 2023 (one year out).
Fact is that while January job creation was stronger than expected, it was not strong, by any measure, as far as Januarys go. Removing all seasonal and year-end adjustments for population, the NFP print of +467K, magically becomes -2.824M. That's your raw number which still isn't a real number because we are discussing a sample survey extrapolated over a much larger population, but this is likely a lot closer to representing the actual labor market, if you happen to be the poor young lad or lass seeking employment.
There is no deception here. I am not pointing out any funny business, simply the folly of adjusting data for seasonal purposes, especially since pandemics and their aftermath are certainly not baked into that cake. Using the BLS' own raw data, the U.S. economy lost 2.631M jobs in January 2021, and 2.791M jobs in January 2020. In both cases, the published, adjusted number (after revisions) for those two Januarys were both above 500K. That is the comparison that needs to be made. Year over year. Quite easily, either by using the raw data, or even using the silly adjusted number which only serves to mislead job seekers rather than smooth out the data (What are we, a bunch of morons? We do year over year comps for everything.), one can see that January 2022 was indeed the weakest January of the past three, which might be rolled up into the "Pandemic era" rather than forcing seasonalities created by Januarys past that just do not fit this environment.
In short, there was no labor market disaster in January 2022 as had been feared, but January 2022 was indeed soft, by pandemic era January standards. Oh, by the way, because no one in the world of Fin Media dares go there... Yes, the 5.7% year over year wage growth was the hottest annual wage growth print since May 2020. This was offset by the 34.5 hour workweek, which was by that metric, the weakest demand for labor by the broader U.S. economy over that same exact time frame. Yes, they paid you more per hour. Conversely, they have also started to cut hours in order to save payroll expenses. Any economist whose views were actually changed solely because of Friday's job report, which was not that strong relative to pertinent comparables, would have to be labeled a "first level" thinker.
Who will light the fire
That I need to survive
Who will be the life blood
Coursing through my veins
- MacDonald, Gadd, Salter (The Alarm), 1985
It was a solid, though volatile week for U.S. stocks. The S&P 500 gained 1.55% over the five day period, while the Nasdaq Composite screamed 2.38% higher. Even the Russell 2000 (+1.72%) and the Dow Transports (+1.1%) got into the act. Relief rally? Hard to tell. Trading volumes did tail off as the week wore on, but also appeared to be stronger on "up" days than on down. Eight of the 11 S&P sector-select SPDR ETFs closed out the week in the green, easily led by Energy (XLE) , up just less than 5%, while Communication Services (XLC) at -1.58% was the only of the 11 to surrender more than 0.28% over the five days. This was for obvious reasons as Meta Platforms (FB) and AT&T (T) took both internet and telecom stocks on a swan dive off of the high board.
Readers can see that in retracting the rally of the past almost two years, that the S&P 500 has found nearly precise support at both the 38.2% Fibonacci line as well as the 200 day SMA.
Zooming in, we see that the broadest of all large-cap indexes has had trouble holding onto the 21 day EMA. This line will prove crucial if the stock market's escape from its early 2021 correction is to survive. The index needs to ultimately retake the 50 day SMA in order to get the general community of professional portfolio managers back on board.
Readers will note that though stringer of late, both the Nasdaq Composite and Nasdaq 100 are in a more precarious position than is the S&P 500. Very similarly, the Nasdaq siblings have struggled with retaking their respective 21 day EMAs. However, at least for these tech heavier indices, the 50 day SMA still lies to the north and can not provide support. Retaking this line for these two indexes could have a broader impact on the equity marketplace in general than would the S&P 500's approach of the 200 day SMA, at least for the short to medium term.
Stand High, Stand Low
The stock of Peloton (PTON) has caught a terrific, steady beating for more than a year now, as workout-minded folks have come to realize that they don't need to pay a king's ransom for special equipment to get good home based exercise. You may want or need a 'spoon" bike or a treadmill, but you can stay within a middle class budget and still sweat quite profusely.
On Friday night, after the closing bell, the battered stock caught a bid, rising from its last sale of $24.60 during the day's regular session to as much as $31.10 later that night. This came after the Wall Street Journal reported that Amazon (AMZN) was among a group of potential suitors looking to possibly take a run at the at home physical fitness retailer which as of Friday was down 85.6% in just about a year.
Other potential suitors that have been bandied about elsewhere (not at WSJ) include Nike (NKE) , Apple (AAPL) , and even Disney (DIS) . In fact, the Apple story made some headlines this weekend, as Wedbush five star analyst (at TipRanks) Dan Ives wrote on the potential positives for such a deal. Remember, Peloton reports tomorrow (Tuesday) after the close, and Peloton does not make money, or at least has not in 2021. Sales growth has slowed to a crawl as well. Blame supply chains. Blame the fact that folks are sick of being home. That said... Peloton does have a cult-like following of something like 3M subscribers and that is exactly what bigger firms with healthier cash flows are after, as they seek growth... new streams of recurring revenue.
Ives sees Apple with its Fitness+ subscription service and Apple Watch potential fits that other suitors may not have. Ives and his team estimated that PTON, which went out on Friday at a market cap of $7.45B, could go for as much as $12B to $15B.
Sleeper of The Week
Uber Technologies (UBER) is set to report on Wednesday night. The stock is down 11% year to date, despite having a good week (+5.2%) last week. Expectations are for an adjusted loss ($-0.29) per share on $5.37B in revenue, which would be growth of about 70%. Uber will hold the usual earnings call after the release... and then Uber will hold the firm's first ever "investor day" as a publicly traded company on Thursday.
The regulatory backdrop and the potential addressable market for a grocery business are expected to be front and center. This could prove a positive catalyst. In addition, I see that as of year's end 1,706 different funds were invested in UBER, which is up (a net 8) from 1,698 at the end of Q3. Why is +8 a big deal? I'll tell you. Because that 1,698 was down (a net 59) from 1,757 at the end of Q2. Potential bottom? Maybe. Certainly better than a sharp stick in the eye.
Economics (All Times Eastern)
15:00 - Consumer Credit (Dec): Last $39.99B.
The Fed (All Times Eastern)
No public appearances scheduled.