Dear Trader,
Sometimes the market won't make sense. But as a trader, that doesn't matter.
The reaction is all that counts.
That was on full display in this morning's "State of the Market." The economy shed 23,000 jobs last month. Wall Street had penciled in a gain of 83,000. The semiconductors ripped 2.3% out of the gate.
It wasn’t because unemployment ticked down to 4.1%. That drop happened because 264,000 people quit looking for work and fell out of the labor force.
That's bad news.
Even worse? Revisions dragged the prior two months lower.
The three-month average is 20,000 jobs. Retail, financials, leisure and hospitality shed 83,000 positions over two months, and restaurants and hotels tend to crack first when regular people stop spending.
Stocks went up anyway.
Why? Because a weak job market drops the odds of an interest rate hike at the next Fed meeting. Bank of America (BAC) had been modeling 75 basis points of hikes. The market repriced to 25 before lunch.
And those odds are set to get even better.
Mark's Asterisk Lands August 28
Mark Sebastian took the mic at 10:00 AM and put something on the calendar: August 28 brings the annual benchmark revision, when the government checks its own work against actual tax records.
That pass could wipe hundreds of thousands of jobs off the official count. The last big revision wiped out over one million.
Fewer jobs on the books gives the Fed less reason to move.
Weak data reads as good news right now because it keeps hikes off the table. Print 250,000 next month against an expectation of 50,000 and the logic inverts.
Good for the country. Bad for your longs.
Mark points out other big government reports that could shift the future outlook of rates.
CPI lands Wednesday, PPI Thursday. Hot prints increase rate hike chances. In-line or soft prints make future rate drops more likely. Hans and the Internet's Bouncer Hans Albrecht came on for the back half with a different kind of trade. Not the one where you follow a reaction that makes no sense, but the one where you sit on a thesis until the numbers catch up to it.
He started pounding the table on Cloudflare (NET) in December. Cloudflare is the bouncer at the door of the internet, the outfit behind every "prove you're human" box you check. Then agentic AI showed up, and bots need a bouncer far more than people do.
This quarter, agent traffic crossed 50% of everything hitting Cloudflare's servers for the first time. More bots than humans. Hans says we're still hitting the snooze button.
Anyone who bought the stock when he first brought it up has doubled their money. Turbo Income traders did better.
Power is his next bottleneck. Virginia's governor blocked the Dominion and NextEra merger, so the pushback on data centers has real votes behind it. Hans likes Quanta Services (PWR) because somebody has to move the electrons no matter who wins the generation fight.
Uranium ran 10% in four days on the same story.
Two kinds of trades in one morning: A jobs number that makes no sense but paid anyway, and a thesis that made perfect sense and paid on schedule.
You don't get to pick which one shows up.
One open item: The crew will run a full bond primer if 50 people ask for it, so email [email protected] and tell them you want it.
Let's see if we can make them schedule it.
Charles Delvalle
Editorial Director, Option Pit