Strong Labor Market and Economic Expansion Make Tapering Inevitable

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Commentary

  • Summary Analysis:
    • Continual improvment in the labor market and PMI indicators confirming robust expansion are sufficient evidence for the need to taper Fed asset purchases and normalize rates. Of course, after an extended period of accommodative monetary policy, investors might require some time to emotionally process the inevitable, which means increased volatility and disdain for growth stocks until rational minds prevail and accept the logical procession of the economic business cycle.
    • The 10-year treasury rate increased 3 bps or (+1.89%). Although this is not necessarily enough to propel the US Dollar (UUP), the prospects of a strong employment report to be released on Friday has motivated some traders to front-run the data.
    • Trading in Cryptocurrencies is showing signs of stabilizing support. Bitcoin (GBTC) and Ethereum (ETHE) made impressive single-digit percentage gains.
    • In Commodities, Gold (GLD) retreated on the prospect of Fed tapering. WTI Crude rose to another 2-year high after a sizable drawdown in supplies and signs of increased demand stemming from a post-Covid global economic recovery.
    • Real Estate (IYR) remains in an unimpeded uptrend while Homebuilders (ITB) are still correcting from this week’s earlier disappointing New Home Sales data and the challenge of higher building materials prices.
  • ETF Equity Markets:
    • US Markets: Although all 4 major equity indices closed in negative territory, the SP-500 (SPY) and Dow-30 Industrials (DIA) were the most resilient. Growth oriented proxies, e.g. the Russell 2000 (IWM) and Nasdaq-100 (QQQ) lagged blue chips.
    • International: Weakness in Emerging Markets (EEM), China (FXI), Latin America 40 (ILF) and Brazil (EWZ). Japan (EWJ) was the only positive performer on the international equities radar.
    • ETF Sector Strength: Consumer Staple (XLP); Utilities (XLU); and Healthcare (XLV).
    • ETF Sector Weakness: Consumer Discretionary (XLY); Communications (XLC); and Technology (XLK).
    • Leading Industries: Oil Field Machinery & Equip; Oil/Refining & Marketing; Communications Components; Building Produts Retail/Wholesale; Utilitie-Gas Distribution.
    • Lagging Industries: Mining/Silver; Buildng/Residential & Commercial; Consumer Products/Misc Discr; Mining/Gold; Electrical/Manufacturing.
  • Large-Cap Volume Surgers:
    • Abbott Labs (ABT): +2.15% on 106% volume surge.
    • Hollyfrontier Corp (HFC): -2.80% on 1257% volume surge
    • C3.Ai Inc. Cl A (AI): -10.36% on 93% volume surge
    • Fireeye Inc (FEYE): -17.62% on 378% volume surge
    • Southwest Airlines (LUV): -4.29% on 71% volume surge
    • Jetblue Airways Cp (JBLU): -4.42% on 40% volume surge
  • Small-Cap Volume Surgers:
    • AMC Entertainment Hldgs (AMC): -17.92% on 347% volume surge
    • Bed Bath & Beyond (BBBY): -27.81% on 446% volume surge
    • Clean Energy Fuels (CLNE): +12.18% on 336% volume surge
    • Tellurian Inc (TELL): +19.17% on 341% volume surge
    • Workhorse Grp (WKHS): +28.21% on 975% volume surge
  • Market Moving Events:
    • Economy / Labor: ADP Nonfarm Employment Change (May-2021) @ 978k vs estimates @ 650k and prior @ 654k; Unit Labor Cost (q/q) (q1) @ 1.7% vs estimates @ -0.4% and prior @ -0.3%; Nonfarm Productivity (q/q) (q1) @ 5.4% vs estimates @ 5.5% and prior @ 5.%.
    • Economy / Jobless Claims: Weekly Initial Jobless Claims @ 385k vs estimates @ 390k and prior @ 405k; and Continuing Claims increased 169k to 3.771m.
    • Economy / Growth Indicators (May-2021): Services PMI @ 70.4 vs estimates @ 70.1 and prior @ 64.7; ISM Non-Manufacturing Employment @ 55.3 vs prior @ 58.8; and ISM Non-Manufacturing PMI @ 64.0 vs estimates @ 63.0 and prior @ 62.7.
    • Commodities / Energy: EIA Crude Oil Weekly Inventories @ -5.08m vs estimates @ -2.443m and prior @ -1.662m.
    • Central Banks / US: Yesterday’s late afternoon announcement to start gradually unwinding purchases of its corporate debt and ETFs under the Secondary Market Corporate Facility was just one of several hawkish communiques issued by teh Fed. In addition to this were St. Louis Fed President Bullard’s citing the historically low ratio of US unemployed workers to job to justify his view of “a very tight labor market.”  Lastly chiming in was Dallas Fed President Kaplan stating “It’s clear we’re weathering the pandemic and making progress.  I don’t think the housing market needs the level of support the Fed is currently providing, and I would love to see, sooner rather than later, a discussion of the efficacy of mortgage-backed securities purchases.”
  • Earnings / Positive Surprises
      • Pre-Market: SJM
      • After-Market: AVGO; COO; DOCU; LULU
    • Earnings / Negative Surprises
      • Pre-Market: n/a
      • After-Market: n/a

ETF Daily Market Performance Summary: 3-June-2021

etf daily market summary for stocks, bonds, currencies, cryptocurrencies, commodities, real estate, and equity sectors
Click to enlarge

Market Diary: 3-June-2021

market diary summary for NYSE and Nasdaq exchanges: advancers, decliners, new highs and new lows, plus mega-cap market breadth
(Click table to enlarge)

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