This week, the markets came to one great realization, and then engaged in a dangerous episode of denial.
In the wake of Obama wiretapping claims, trade wars, immigration bans, and an assault on globalization, the Republican Party is starting to wonder how quickly they can dump the new president.
Apparently, the Trump universe had Moscow on speed dial. Can you name one administration official who did not have close connections with Russia?
As for you and me, we have none.
The upside is that even if new Russia revelations force Trump into early retirement, Mike Pence will carry on with a tax cutting, deregulation philosophy that will take markets 30% higher.
That revelation prompted me to use the next available dip in prices to jump back in on the long side with equities.
It’s “RISK ON” once again.
I picked up aggressive positions in cyber security firm Palo Alto Networks (PANW) and artificial intelligence front-runner NVIDIA (NVDA), both of which have seen share prices recently savaged, but have great long-term fundamentals.
The immediate result was to boost my Trade Alert performance to a record high of 235.99%, or 17.43% for 2017 year-to-date.
And now for the denial part.
Did anyone but me notice that the entire commodity space utterly blew up last week?
Oil (USO) grabbed the headlines with its meltdown below $50 a barrel. But copper (COPX), gold (GLD), silver (SLV), and even the ags (WEAT) also collapsed.
Is this merely proof of the coming Federal Reserve interest rate hike on Wednesday, March 15th at 2:00 PM EST?
Commodities always do poorly during times of rising interest rates, as they yield nothing and pay no dividends.
Or is this a warning of a slowing economy ahead, as it traditionally is?
It could be either, or both.
I have seen so many economic, business, and trading models completely blow up over the past year that I am now permanently suspicious of everything.
A 25 basis point jump now seems baked in, with the futures market indicating a 96% probability.
So, where’s the surprise? Will Janet raise by 50 basis points, or not at all?
Not to do so would violate the Fed’s publicly stated philosophy of being data dependent. We have now hit all fed criteria for a rate rise, full employment and sustained inflation rate exceeding 2%.
The bottom line seems to be to just close your eyes and buy.
Focus on the best blue chips, like Facebook (FB), Apple (AAPL), and Alphabet (GOOG), so if you’re wrong, at least you won’t get fired.
The February Nonfarm Payroll report came in at a shocking 235,000.
The headline unemployment rate fell to 4.7%. Average hourly earnings rose to a 2.8% annual rate, the second hot month in a row, indicating that the return of inflation is imminent.
The U-6 Long-Term Structural Unemployment Rate fell to 9.2%.
The Labor Force Participation Rate was 63.0, a one-year high.
Construction was up +58,000 and professional and business services were up +37,000.
Private education made a rare appearance in the monthly jobs figures, up +39,000, reflecting the deregulating preference of the new government. Private for-profit schools were under siege by the previous administration.
Retail was the big loser, down -26,000, and the industry faces the twin onslaughts of Amazon and an impending border adjustment tax. Expect this to continue. Retail has become the new oil industry.
The good jobs number just shows how gridlocked the economy had become because of the election, no matter who won. Much of 2017 was essentially gridlocked.
The markets will essentially be on hold until the Fed makes its move on Wednesday.
On Monday, March 13th, at 10:00 AM EST, we get February Labor Market Conditions Index, which should run hot, given the blockbuster Friday numbers.
On Tuesday, March 14th at 6:00 AM EST we receive the February NFIB Small Business Optimism Index, which should do well too, give that small companies are taking the lead in the new hiring binge.
On Wednesday, March 15th, at 8:30 AM EST we get an updated Consumer Price Index for February, which should show inflationary tendencies, the last bit of meat the Fed has to chew on.
Then our nation’s central bank announces its grand rate decision at 2:00 PM EST. Markets should go crazy.
On Thursday, March 16th, we learn the Weekly Jobless Claims at 8:30 AM EST, as well as February Housing Starts, which recently have been on a tear.
The all-important weekly EIA Petroleum Status Report is out at 11:30 AM EST, and should confirm the enormous build ups that led to last weeks collapse.
On Friday, March 17th, a Quadruple Witching in the options market should dominate trading as the March options come off the board. We have already profitably come out of our March positions.
Wrapping up the week at 1:00 PM EST is the Baker-Hughes Rig Count, which has been up 16 out of the last 17 weeks, boding ill for oil prices.
Good luck and good trading.
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