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Why Did Stocks Drop Again?

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Why Did Stocks Drop Again? Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • Why Did Stocks Drop Again?
  • How High Can Gold Go?

Futures are bouncing modestly from Thursday’s afternoon selloff, following a quiet night of news and as investor look ahead to today’s jobs report.

Economic data overnight (German Manufacturers’ Orders and Euro Zone retail sales) slightly missed expectations but the numbers aren’t increasing growth worries.

Today the focus will be on the jobs report and expectations are as follows: 200K Job Adds, 3.9% Unemployment Rate, 4.1% y/y Wage Growth.  The risk for this market remains for a “Too Hot” report that shows strong job adds, low unemployment and hot wages, while a number modestly below expectations would be welcomed as “Goldilocks” and likely spur a rebound in stocks and bonds.

In addition to the jobs report, we also have several Fed speakers including Collins (8:30 a.m. ET), Barkin (9:15 a.m. ET), Logan (11:00 a.m. ET) and Bowman (12:15 p.m. ET). If their tone is hawkish, it could reduce June rate cut chances and increase volatility.

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How to Explain the Current Pullback to Clients & Prospects

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What’s in Today’s Report:

  • How to Explain the Current Pullback to Clients & Prospects
  • Weekly Market Preview:  Will Treasury Yields Stabilize? (That’s the Key to Ending This Pullback)
  • Weekly Economic Cheat Sheet:  Important Growth Updates and Powell Speech on Friday

Futures are modestly higher thanks to more evidence of global disinflation and despite another round of underwhelming Chinese stimulus.

German PPI declined -6.0% y/y vs. (E) -5.1% y/y and that’s serving as a reminder that inflation is still falling globally.

In China, officials cut the Loan Prime Rate less than expected (-10 bps vs. (E) -15 bps) and while that will provide stimulus, it’s not alleviating concerns that the Chinese economy will be a headwind on global growth.

Today there are no economic reports and no Fed speakers (the Jackson Hole Fed conference is this week, so speakers will increase throughout the week culminating with Powell on Friday).  As such, Treasury yields will remain a short-term influence on stocks.  Yields and futures are higher this morning but if yields extend the rally throughout the day, don’t be surprised if stocks give back these early gains.

What to Make of Yesterday’s Drop & Jobs Report Preview

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What’s in Today’s Report:

  • What to Make of Yesterday’s Drop
  • Jobs Report Preview
  • Natural Gas Update

Futures are slightly lower as markets digest the whiplash of the past two trading days following a mostly quiet night.

German economic data again badly missed estimates as German Industrial Production fell –3.9% vs. (E) -1.0% and fears of outright stagflation in the EU are rising quickly.

Today focus will be on the Jobs Report and estimates are as follows:  Job Adds: 400K, UE Rate: 3.6%, Wages: 0.4% m/m, 5.5% y/y.  This market needs a “Goldilocks” report that’s subdued on wages and with job adds modestly below the estimate of 400k.  If markets get that Goldilocks jobs report it should help stocks stabilize.  If the report ends up “Too Hot” though, especially on wages, brace for more selling.

There are also numerous Fed speakers today including: Williams (9:15 a.m. ET), Kashkari (11:00 a.m. ET), Bostic (3:20 p.m. ET), Waller and Bullard (7:15 p.m. ET) and Daly (8:00 p.m. ET).  Don’t be surprised if they all sound more hawkish than Powell did on Wednesday.  Remember, it appears the Fed’s tactic is to “Talk Tough” on looming rate hikes and inflation, yet be more measured on actual rate hikes than rhetoric would suggest.  Regardless, if there’s a consistent chorus of hawkish commentary, that will likely weigh on stocks, at least partially.

Tom Essaye Quoted in CNBC on June 11, 2020

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Tom Essaye, founder of the Sevens Report, on what triggered the sell-off

“Fed chair Powell yesterday really reminded investors that there’s a huge, huge gap between the economic reality and the market reality. Just that reminder combined with a lot of the second wave…” Essaye told CNBC. —Li 

Click here to read the full article.

Tom Essaye Interviewed with Yahoo Finance on February 28, 2020

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Tom Essaye intereviewed with Brian Sozzi and Alexis Christoforous from Yahoo Finance to discuss the debate on whether the Federal Reserve must hold an emergency meeting this weekend and cut interest rates to arrest the coronavirus stock market crash.

Click here to watch the full interview.

Tom Essaye Interview with Yahoo Finance

What to Make of Yesterday’s Selloff

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What’s in Today’s Report:

  • What To Make Of Yesterday’s Collapse
  • Yield Curve Update (Steepening But for the Wrong Reasons)

Futures are down sharply  but well off the overnight lows as markets digest yesterday’s collapse in stocks.

Coronavirus continues to spread (new cases in Nigeria and New Zealand) but China announced the fewest number of new cases since January 23rd, so there is progress occurring.

Economically, Japanese Retail Sales (-0.4% vs. (E) –1.0%) and Industrial Production beat estimates.

Coronavirus headlines will continue to dominate trading and today will be another volatile day (Friday’s in corrections always are), but outside of coronavirus markets will be focused on the Core PCE Price Index (E: 1.8%), Consumer Sentiment (E: 100.9) and one Fed speaker Bullard (9:15 a.m. ET).