Good morning contrarians!
At risk of summoning memories of a certain 1980s wrestler, yesterday was a brutal sell-off on Wall Street. All of Wednesday’s gains were given back and then some as the Nasdaq plunged 5%. The S&P 500 dropped by 3.5% as stocks had their worst day since June 2020. Amazingly, the S&P is still positive for the week.
State of Play
This morning as of 0630, futures are down a bit. Tech is leading the drop again, with the Nasdaq off about 0.7%. S&P and Dow are down a little less.
Bonds are steady after seeing their own sell-off yesterday. The 10-year is sitting at 3.08% and the 2-year at 2.73%. These are multi-year highs for both.
Commodities are seeing some bids with WTI crude oil up 2% to trade around $111/barrel. Natural gas is up 2% but then industrial metals are down, with palladium 2% lower.
Cryptos are selling off. Bitcoin is down 8% to trade around $36,300. Good luck to those of you still holding out hope that cryptos aren’t tied to major asset classes.
Non-Farm Payrolls
It’s the first Friday of the month, which makes it Jobs Day. The Bureau of Labor Statistics reports non-farm payrolls at 0830. Economists surveyed expect 391,000 new jobs in April, down from the 431,000 seen the previous month, with the unemployment rate dripping down to 3.5% from 3.6%.
These are very healthy numbers and do not look anything close to recessionary. Eventually all economic expansions run their course and usually higher interest rates is what ushers in their end. That is partly why stocks have been selling off lately. Markets are forward-looking indicators.
Earnings
Still a couple of these worth watching. This morning Cigna (CI), Under Armour (UAA), and DraftKings (DKNG) are due to report before the open. Later on we’re supposed to get Goodyear Tire (GT),
The Bottom Line©
The risk with the NFP number may be one that is ‘too good,’ as that will summon the fear of higher interest rates. But who really knows these days. It’s still not entirely clear what caused yesterday’s sell-off. Lots of talk on the Twitter of a fund blowing up, which probably just means it’s something else entirely.
Bonds and stocks selling off at the same time is pretty unusual and also leaves us struggling for a narrative. Generally bonds sell off when things move to risk-on, which is when stocks rally. But stocks aren’t rallying. Interest rate tightening is surely bad for bonds, but stocks usually don’t sell off during the early stages of a tightening cycle.
Sell in May and go away? More like sell in April. Or better yet, last November. But you know better than to put any credence in these silly sayings.
Rude Awakening: Daily Contrarian, May 6