Broadcom Bleeds, Semis Sink, Will Jobs Numbers Stink?
After a week that feels like pulling teeth, let’s check on the ‘rotation,’ the semiconductors and brace for the jobs report.
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You there…? We’re here. Zero dark-thirty. Friday morning. We made it. I don’t know about you kids, but to me, this week has sort of felt like pulling teeth. Painful and slow. On Thursday, trading volumes contracted on a day-over-day basis for a fourth consecutive session. The last day of impressive aggregate trade that this market experienced was the end-of-month session that brought May to a close. There was a significant selloff on Wednesday. That selloff more or less excluded the semiconductors. Then there was a modest relief rally on Thursday. Yes, that rally also more or less excluded the semiconductors. Psst, S&P and Nasdaq futures are weak again overnight. The Dow Industrials? Nobody has cared since the early 1990s.
Smells like a rotation. Long-term? I’ll not be going flat my semiconductor longs any time soon even if I will adjust position size according to the ebbs and flows of the algorithms that now control professionally managed money. I do miss the days when angry managers were yelling at terrified assistants who were then yelling at equally terrified order clerks who at that point tried to explain it all to arrogant (that’s me) floor traders. Oh, well. Blacksmiths had their day, too. Flowers eventually wilt and glory days eventually fade.
So, markets have been controlled so far this week by the apparent lack of progress in the peace process as talks between the U.S. and Iran, at least on the surface, appear to go nowhere. Hostile activity has increased. Oil prices moved higher as did yields paid by treasury debt securities and that put some volatility back in equity markets. On Thursday, it did not appear that anybody tried to kill anybody else. Oil prices and treasury yields cooled off a bit and equity prices breathed easier. Still, trading volumes tailed off further.
Why has activity cooled? Because, says the man in the darkened window, today is the day. The day for what? The day that the Bureau of Labor Statistics will release its two labor market surveys for the month of May. What to expect? I’m hearing consensus is for job creation of about 105,000 positions. We have already seen an optimistic-looking report for May for private sector employment that was published by ADP on Wednesday. That said, the ISM Service Sector PMI, which covered about three-quarters of the U.S. economy, showed an outright contraction in May employment. following contractions for both March and April.
What do I think? Readers will see below that I am looking for May non-farm job creation of just 96,000 positions. I hope my estimate is low. I really do.
Heading Into The Event…
As we head into the BLS release this morning at 08:30 ET, Fed Funds futures trading in Chicago are currently pricing in a 96% probability for no change to be made to the current target range (3.5% to 3.75) for the Fed Funds Rate at the next FOMC policy meeting on June 17th. This is down from 99% a few days ago. Kevin Warsh is now running the central bank. This should be interesting. Former top dog Jerome Powell is still a voting member of the Board of Governors and will remain influential. There are no rate cuts fully priced in at any point into the distant future looking out towards year’s end next year. That said, there is now a rate hike priced (65% probability) in as early as March 2027.
Marketplace
Thursday was a moderately better day than Wednesday for U.S. equities. The S&P 500 managed to take back 0.41% after losing 0.74% on Wednesday. The Nasdaq Composite surrendered just 0.09% after a much weaker open. However, this came after a loss of 0.89% on Wednesday. That index now has a two-day losing streak going after having posted nine consecutive green candle sessions. The two-day loss appeared to accelerate across the Nasdaq 100.
Small caps outperformed broader markets on Thursday as the Russell 2000 added 1.45% and the S&P 600 gained 1.28%. The KBW Banks absolutely soared, gaining an impressive 3.71%. The story of the day was about the semiconductor sale though. The Dow Jones U.S. Semiconductor Index lost 2.61% as the Philadelphia Semiconductors gave up 2.15%. Broadcom (AVGO) led the beatdown at -12.6% in response to a quarter that beat expectations but fell short of the “whisper” numbers. Following Broadcom, Micron Technology (MU) and Arm Holdings (ARM) gave up 7.7% and 4.5% respectively. Marvell Technology (MRVL), which Chris Versace was quick to catch onto early, bucked the trend and added another 4.9% for the day.
Breadth
For Thursday, eight of the 11 S&P sector SPDR ETFs closed out the regular session in the winner’s circle. Health care (XLV) led the way with the providers leading health care. Highlighting the group, Humana (HUM) and UnitedHealth Group (UNH) added 6.8% and 5.2% respectively. Technology (XLK) suffered a last place finish on the daily performance tables, though software was not nearly as weak on the day as were the semis. .
Winners beat losers on Thursday at the NYSE by a cool seven-to-three margin and by a rough seven-to-four at the Nasdaq. Advancing volume was strong enough, taking a 65.4% share of composite NYSE-listed trade and a 60.3% share of composite Nasdaq-listed activity. That’s where the fun stops. Aggregate trade, as mentioned above, contracted on a day-over-day basis, across NYSE-listed securities, across Nasdaq-listed securities and across the membership of the S&P 500. Put bluntly, the market, despite the noise and violence coming out of the Middle East, has been waiting for this Friday’s jobs numbers for May since last Friday’s closing bell.
Dumb Take…
On Thursday, Kansas City Fed Pres. Jeffrey Schmid said:
“The big question now is do we stay patient? Our inflation numbers have probably crept up into the three and a half percent range, which nobody likes. Is it temporary…or do we act? Do we say, okay, now it’s time to raise rates a quarter or two and see if we can’t tamp this thing down?”
Sarge says: “Does anyone here actually understand that supply shocks destroy demand on their own? Why impact that equilibrium artificially?”
Smart Take…
On Thursday, San Francisco Fed Pres. Mary Daly said:
“We are prepared to respond either way, whatever the economy brings. I think giving more forward guidance about what’s possible could be misguiding (I would have used ‘misleading’, but go on) in the end, because we just have to wait for the economy to evolve.”
Sarge says… “Holy crap. Write this down. Somebody at the Fed actually gets it.”
The Dream Keeper
Bring me all of your dreams,
You dreamer,
Bring me all your
Heart melodies
That I may wrap them
In a blue cloud-cloth
Away from the too-rough fingers
Of the world.
– Langston Hughes (1932)
May Employment Situation (08:30 ET)
Non-Farm Payrolls: Expecting 96K, Last 115K.
Unemployment Rate: Expecting 4.3%, Last 4.3%.
Underemployment Rate: Expecting 8.3%, Last 8.2%.
Participation Rate: Expecting 61.7%, Last 61.8%.
Average Hourly Earnings: Expecting 3.5% y/y, Last 3.6% y/y.
Average Weekly Hours: Expecting 34.3, last 34.3 hours.
Other Economics
(All Times Eastern)
1:00 p.m. – Baker Hughes Total Rig Count (Weekly): Last 562.
1:00 – Baker Hughes Oil Rig Count (Weekly): Last 429.
3:00 – Consumer Credit (Weekly): Last $24.86B.
The Fed
(All Times Eastern)
No public appearances scheduled.
Today’s Earnings Highlights (Consensus EPS Expectations)
Before the Open: ABM (.88)
At the time of publication, Guilfoyle was long MU equity.
