Selling Snapchat After Jobs Report Take a Toll
How we’re navigating our small-cap holdings following a rate cut update.
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The $10K Portfolio took a serious hit on Friday as did the broader U.S. equity marketplace. Tech/Space stocks and small caps, which are, in a strange marriage, what this portfolio primarily holds, are probably more susceptible to higher interest rates. Hence, these groups suffered disproportionately on Friday as yields worked their way higher.
The Bureau of Labor Statistics reported a very strong labor market report for the month of May on Friday morning, after having already reported strong months both for March and April. Three consecutive months of aggressive hiring across the U.S. economy is not an accident. This clearly now becomes a trend. Friday’s release was even more encouraging for U.S. workers than the last two, as with it came bearing upward revisions to those two months and with implications that most of May’s job creation was actually in full-time opportunities. That’s something the U.S. economy has not seen in some time.
Looking over the Establishment Survey, we see that job creation in the form of non-farm payrolls for May printed at 172,000 positions, well above the 90,000 or so that had been the professional consensus. Additionally, the NFP prints for March and April were revised higher from 185,000 and 115,000 to 214,000 and 179,000, respectively. That placed non-farm hires for the month of May at a net 265,000. This is just stunning considering where economists had put the economy only a short while ago.
Moving on to the Household Survey: That particular survey showed 149,000 more employed persons for the month and 66,000 fewer unemployed persons. These two surveys are actually telling similar stories for a change. For several years in the early 2020s, the validity of these reports had become suspect due to the conflicting internal data. That is no longer the case. The number of individuals dropping out of the labor force in May increased by only 17,000 persons, which is a very low monthly number, while the labor force grew by 83,000 participants.
The problem is that the FOMC is less likely to cut rates and our markets won’t like it, but the economy and labor markets are in a much healthier place than they were earlier this year.
There’s More…
Let’s talk about “quality” in job creation.
The U-3 Unemployment Rate, or the “underemployment rate,” which is also drawn from the Household Survey, moved lower in May from 8.2% to 8.1%. The Participation Rate held steady at 61.8% and has now held firm at its lowest level since September 2021. The Employment to Population Ratio similarly dropped from 59.2% to 59.1%. That, as I have been trying to explain, is misleading.
Low participation is due to increased retirement among workers drawn from my age group and beyond. Participation among 25- to-54-year-olds now stands at 83.9%. The 25-year high participation level for that demographic is 84%, so for core workers, by age, participation is extremely high by recent historical standards.
The number of individuals working part-time for economic reasons decreased by 137,000 persons in May while the number of individuals working part-time for non-economic reasons increased by 147,000 persons. That’s just 10,000 more part-time workers with job creation (from the same survey) of 149,000 positions.
This implies a significant increase in full-time employment of as many as 139,000 full-time positions or a net 255,000 full-time jobs if one uses non-farm payrolls. It’s been quite a while, many years even, since U.S. employers started moving part-timers to full-time status in the kinds of numbers that this report now implies.
Of Course…
This increased pace of job creation and increased quality in the types of jobs being created adds to the threat of rising consumer level inflation. Yields increased on Friday as did the prospects for an eventual interest rate increase, not the cut that some were still hoping for.
On Monday morning, Fed Funds futures trading in Chicago are currently pricing in a 98% probability for no change to be made to the current target range (3.5% to 3.7%) for the Fed Funds rate at the next FOMC policy meeting on June 17. That’s down from 99% a week ago. As we know, Kevin Warsh is now running the central bank, so the institution should be less politicized. That does not mean that he can or will cut rates. It simply means that the Fed will no longer find reasons to counter logic when implementing policy.
Bottom line? Futures markets are not pricing in any rate cuts at all looking all the way out toward year’s end 2027. There is now a rate hike priced (74% probability) in as early as December 2026. That’s up from a 70% probability on Friday after this report had been released.
Friday’s Intentions vs Friday’s Actual Trades
Intention: Purchase 3 shares of (PL) at or close to the last sale of $34.48
Actual trade: Bought 3 shares of PL at $33.83.
Intention: Purchase 2 shares of (RKLB) at $114 or better
Actual trade: Bought 2 shares of RKLB at $112.56
Monday’s Intentions
I am going to sell half of the portfolio’s holdings (SNAP) and cover one of the calls sold against that position. Why? I don’t feel like that position is helping us and I want to create enough cash to buy one more share of (AMZN) while that stock is trading below the portfolio’s net basis.
Note: If mirroring this portfolio precisely, cover the one SNAP call before selling the 100 shares of SNAP equity unless one is okay with for a short while, being short a naked (uncovered) call.
Purchase one SNAP October 16 call at or close to the last sale of $0.93.
Sell 100 shares of SNAP at or close to the last sale of $5.81
Purchase one share of AMZN at or close to the last sale of $248.93
Current Positions
Long 100 shares of (ALTO) at $5.79. Target price: $9. Last sale: $5.45.
Long 2 shares of AMZN at $263.71. Target price: $324. Last sale: $248.93.
Long 60 shares of (EVLV) at $5.9895. Target price: $8.50. Last sale: $5.98.
Long 200 shares of (OCUL) at $8.271. Target price: $11. Last sale: $8.40.
Short one OCUL $11 September 18 call at $1.65, Last sale: $0.98.
Short one OCUL $9 July 17 call at $0.90. Last sale: $1.23.
Long 150 shares of (ONDS) at $9.7624. Target price: $14. Last sale: $10.89.
Long 10 shares of PL at $36.175. Target price: $55. Last sale: $34.32.
Long 10 shares of (PLTR) at $137.906. Target price: $194. Last sale: $136.60.
Long 7 shares of RKLB at $74.45. Target price: $185. Last sale: $114.67.
Long 150 shares of (SIDU) at $3.0909. Target price: $6. Last sale: $4.41.
Long 200 shares of SNAP at $5.7642. Target price: $7.50. Last sale: $5.81.
Short 2 SNAP October 16 $6 calls at $0.87. Last sale: $0.93.
Long 150 shares of (SOFI) at $15.9035. Target price: $24. Last sale: $16.26.
Short one SOFI August 21 $20 call at $1.02. Last sale: $0.82.
Long 35 shares of (VELO) at $12.3231. Target price: $30. Last sale: $16.69.
Cash: $214.85.
Portfolio value: $11,804.60, +18.1% from inception on March 24.
At the time of publication, Guilfoyle was long ALTO, AMZN, EVLV, OCUL ONDS, PL, PLTR, RKLB, SIDU, SNAP, SOFI and VELO.
