Stocks Rebound Ahead of The April Job Report

Subscribe to The Free Market Chronicle and join the 2,701 subscribers getting it for FREE!

5/2/24

#Stocks: $AAPL

#Macro: #Rates, #Jobs, $SPX, $VIX

Mike’s Reading The Markets Macro Subscription Service on Seeking Alpha

MICHAEL KRAMER AND THE CLIENTS OF MOTT CAPITAL OWN AAPL

Stocks rebounded today, with the S&P 500 climbing by 90 bps, ahead of what will be another big data point and the last major data point until the CPI report. I am thankful. The run over the past week-and-a-half, along with earnings, has been tiring and, at times, rather stressful. So, with the release of the employment report and the ISM services report at 10 AM, the market will finally have a chance to figure out what the last two weeks have given us.

If today’s Productivity and Unit Labor cost showed anything, it is that productivity is non-existent, costs are increasing, and what we are seeing is an economy powered by rising prices. Because at the end of the day, tomorrow’s wage data is expected to rise by 4% y/y and by 0.3% m/m. If productivity in the first quarter was just 0.3% Q/Q SAAR, and wages are growing by around 4%, then does that imply a 3.5% to 4% inflation rate? It certainly sounds right based on the latest CPI data points.

Jobs are expected to increase by 240,000 compared to last month’s 303,000, while the unemployment rate remains at 3.8%. Then, at 10 AM, ISM services are expected to increase to 52 from 51.4, while prices paid are expected to rise to 55 from 53.4. The prices paid index took a big tumble last month, and it seemed highly unusual, so it will be interesting to see how much it bounces back in April. Generally, prices in copper, manufacturing and services tend to move together, so the move lower last month was odd, and I would expect to see a bigger rebound this month. We will have to see.

Despite everything, the 10-year rate moved lower today, and it was not what I expected. This week, we have had plenty of data to push the 10-year up, but it didn’t. I’m unsure if it is waiting for data tomorrow, but we will find out. If it doesn’t jump tomorrow, then the odds will rise; we will head back to 4.35% first, which would be disappointing.

The dollar also pulled back today, and like the 10-year, there is no doubt whether it will continue higher or not. At this point, it will take a hot job report tomorrow to get the dollar moving up.

Reserve balances crept higher this week as the reverse repo and the TGA fell today, allowing the reserves to rise. Reserves are still rather low at $3.3 trillion, and while they are likely to rebound some, I don’t think they will return to the highs we saw at the start of 2024. So, for now, we will have to continue to watch how Bitcoin trades to give us a sense of the liquidity flows.

The VIX1D and the S&P 500 moved higher today. However, after tomorrow’s job report, the VIX1D will probably crater again. So again, a move higher in the S&P 500, regardless of the data, seems probable given the implied volatility reset that will be needed. Once IV resets, the market will trade “normally” again.

Finally, I noted today that Apple had a lot of gamma built up between $175 to $180 in the options, and that a move over $180 might be met by sellers once regular hours trading resumed on Friday. I have owned the stock for a long time, and the move higher in the share seems overdone to me. Additionally, the guidance was okay but nothing great, and it sounds like gross margins are a bit lite versus estimates. Also, when the company was probed by analysts on iPhone sales being down mid single digits, which would be more than expected, Tim and Luca got a little weird. So would I be surprised to see the stock trading back below $180 tomorrow, not at all.

-Mike

Charts used with the permission of Bloomberg Finance L.P. This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.