The start of June got off to a pretty favorable start for investors, with both stocks and bonds advancing modestly. Generally, about now the summer lull kicks in. People’s minds turn towards vacations and away from the markets. And who can blame them. But the world is different, and apparently the prospect of free popcorn is enough to stir people’s speculative appetites. AMC managed a monster rally this week as people chased another ‘meme’ stock. If you thought GameStop was nuts, AMC says hold my beer as it shoots higher while issuing more than half-a-billion of new equity.
Good times. Apparently, everyone on the planet will be going to movies multiple times every week for the rest of… well, for the rest of forever I guess.
Not much news for the week other than a couple key jobs report. First up was the ADP report that reported a gain of +978k jobs in May versus estimates of +650k, the largest increase since last June. Total private sector jobs are now 5.7% below their pre-covid high.
The closely watched non-farm employment report came in at +559k, also short of the 675k estimate (some people thought we’d get close to +1mm). close to our expectations of 550,000 but a little short of consensus expectations for a 675,000 gain. The unemployment rate did manage to dip lower to 5.8%.
If you look at the sector level data, the fall in construction jobs stands out (-20K). Home inventories are exceptionally low, demand is through the roof, but hiring is down? Could we chalk it up to supply constraints and high lumber prices?
Other data points to a much tighter labor market. For example, we know from the recently released NFIB survey data that a historically high percentage of firms are reporting difficulties in filling positions.
Lots of theories as to why: generous unemployment benefits acting as a dis-incentive, health concerns, childcare problems, or simply that it takes time to match jobs with qualified candidates.
But the jobs report was Goldilocks like for the market. Not too soft that people would start worrying about the strength of the recovery, but not too hot they would fret about pending monetary restraint.
On the last point, the Fed may be setting the stage to start cutting their bond purchases by the end of the year, but it is hard to see them being too aggressive while employment levels remain below the pre-Covid trend.
Charts We Found Interesting
1. Positive cases in the U.S. are at the lowest level since this whole thing began.
2. Shell loses a court case, that if it stands, will require a 45% cut in emissions by 2030. Exxon loses three board seats and will be pressured to cut production. Other energy companies have now been put on notice. What happens to future production trends? Will the race to ‘net zero’ come about, not through demand reduction, but a supply crunch?
3. Coal usage is dying in the U.S. and Europe. Not so much in China.
4. The Fed owns a quarter of all U.S. Treasuries. So, the government is essentially paying itself interest?
5. Covid has led to lower hunger rates in the U.S.
6. Inflation expectations are at the highest level in a decade…but basically back to the average from 2003 to 2008.
7. The auto inventory to sales ratio is at the lowest level since records began. No wonder used car prices are through the roof.
8. Which probably explains why 41year-old Toyota trucks are now going for over $20k!!
Have a good weekend.
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