The surprising employment report gave stocks a boost; I'm not expecting aggressive rate cuts; Historic rally for stocks; Investors' wild speculating recently; Good luck to Bill Ackman in his tennis match tomorrow
1) On Thursday, the Labor Department's employment report for June helped send stocks even higher...
The report showed that the unemployment rate had fallen to 4.1% and that the U.S. had added 147,000 jobs. Both figures beat Wall Street expectations – and the S&P 500 Index hit another new all-time high on Thursday.
This Wall Street Journal article has more details: Steady Hiring Added 147,000 Jobs to U.S. Economy in June. Excerpt:
U.S. job growth continued at a steady pace last month, surprising economists who had predicted a slowdown in hiring amid uncertainty over trade and fiscal policy...
Revisions showed that hiring was stronger in prior months than previously thought. The number of jobs added in April and May was a combined 16,000 higher than prior estimates. Job growth was heavily concentrated in state and local government and in healthcare.
Here's a bullish take from The Kobeissi Letter in a post on social platform X:
But in a different post on X, this analyst wasn't so impressed:
2) Meanwhile, it's really quite remarkable that many investors are expecting the Federal Reserve to cut rates three times this year and two times next year.
That's in spite of the following points that Creative Planning's Charlie Bilello just highlighted in his latest Week in Charts blog post on July 1:
1. Stocks: all-time highs
2. Home Prices: all-time highs
3. Bitcoin: all-time highs
4. Money Supply: all-time highs
5. National Debt: all-time highs
6. CPI Inflation: averaging 4% per year since 2020, double the Fed's "target"
In light of these factors, it makes no sense that the Fed would cut rates. The Fed typically only does so when inflation is low and the economy is weakening – so I expect that it will not cut rates so aggressively.
3) How quickly investors forget that it was only a few months ago, at the market low for the year on April 8, that the S&P 500 was off to the fourth-worst start to a year since 1928, down 15.3%.
Take a look at this table from the same Week in Charts post from Bilello:
One of the reasons I didn't panic and told my readers to sit tight was that, in five of the six prior instances when the index had a terrible start to the year (down 9.7% or worse), it had risen the rest of the year – by an average of 28.1% (and the only negative return was a mere 0.3%).
Sure enough, as Bilello shows in the next table, as of July 1 the S&P 500 had exploded upward by 22% since April 8 – the 10th best 12-week performance since 1989.
After huge rallies, I would have expected stocks to take a breather.
But to my surprise, Bilello shows that in the 19 other times when the index did the best over 12 weeks, it continued to rise in almost all time periods... Not only that, but it also rose more than average over the following six-, 12-, and 24-month periods (though less than other periods over three, four, and five years):
So I'm continuing to tell my readers to sit tight – but also to have modest expectations for stocks (think 5% annually for the next five years).
4) But if you own profitless, speculative stocks that have ripped during this rally, consider taking most or all of your profits off the table.
Here's a WSJ article from the past weekend about the foolishness that has returned to some pockets of the market: Meme Stocks and YOLO Bets Are Back and Fueling the Market's Rally. Excerpt:
Of the 14 companies in the Russell 3000 index that have more than tripled since April 8, when the market bottomed out, 10 don't generate any profits, according to analysts at Bespoke Investment Group. And through late June, the 858 Russell 3000 stocks with no earnings have since posted average gains of 36%, outperforming their profitable peers.
Stocks such as Avis Budget Group (CAR), Carvana (CVNA) and Aeva Technologies (AEVA) are flying high, a sign investors have reacquired a taste for speculation. It also reminds some analysts of the meme-stock era, when near-zero interest rates and other government stimuli juiced a market rally.
And as the article continues:
"We're not yet seeing a full-fledged 'flight-to-crap,' but it is clear that the motivation behind many of these stocks' activity is something other than disciplined considerations of discounted cash flows," said Steve Sosnick, chief strategist at Interactive Brokers.
Case in point: A Goldman Sachs index of retail traders' favorite stocks just set its first record since November 2021, the previous peak for many speculative bets before they wilted under the strain of higher rates.
5) My college buddy Bill Ackman of Pershing Square Capital Management is an avid tennis player – so much so that he has partnered up with one of the greatest doubles players of all time, Jack Sock, and is playing a match tomorrow at the Hall of Fame Open in Newport, Rhode Island.
They will be facing off against two Australians, Omar Jasika and Bernard Tomic – both ranked around No. 200 in the world in singles (though Tomic was once as high as No. 17).
Here's a Bloomberg article about Bill's upcoming match: Bill Ackman Vies to Become The Oldest Tennis Player to Win Pro Points. And here's an excerpt from an extensive post on X from Bill last Wednesday:
@JackSock managed to get a wildcard into the @TennisHalloFame Hall of Fame Open in Newport Rhode Island, an @atptour Challenger and @WTA 125 event, and invited me to be his partner. I of course accepted. Doubles matches begin next Tuesday, July 8th...
I strongly encourage you to visit the Hall of Fame, attend the tournament, and come to cheer us on (or boo me, if that is your point of view). If we win, I am pretty sure I will be the oldest person in tennis history at 59 to win ATP points.
I am playing the best tennis of my life and Jack is one of the greatest doubles players ever (he won @Wimbledon and the @usopen, and a gold medal in the Olympics), and we start practice this Friday, so you never know.
As a fellow geriatric pushing my limits and fighting Father Time, I can relate to this endeavor... Good luck, Bill!
Best regards,
Whitney
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