Russia's Game of Risk; the 911K Job 'Surprise'; Oracle, GameStop Blast Off

What could more than rattle global financial markets? Maybe financial markets won't even be the priority. Every once in a while, I am asked by someone in the media what I think the greatest threat to the bull market is. Though I often recognize a number of threats, my answer to that question is never outright recession nor policy error. Those threats are real. But the threat of a Black Swan event born of geopolitical circumstance is the one event that monetary policy cannot prepare for, while also forcing unintentional imbalance upon fiscal policy makers.

Early Wednesday morning in eastern Europe, or Tuesday evening here in the U.S., Polish forces were forced to shoot down a number of unmanned Russian military aircraft in what is being described as the most serious violation of any NATO nation's sovereign airspace since the Russian invasion of Ukraine in February of 2022. This is the first time that any NATO member has had to actually fire upon Russian aircraft that have "strayed" across its borders since the start of that war.

Polish Prime Minister Donald Tusk stated that his nation's airspace had been "violated by a huge number of Russian drones" and called the event "a large-scale provocation." According to the Wall Street Journal, European Commission Pres. Ursula von der Leyen told the media that more than 10 Russian Shahed drones had crossed into Polish airspace. Shahed drones are Iranian-designed unmanned combat aerial vehicles developed by Shahed Aviation Industries. The drones, which are often used in exploding kamikaze-like fashion, are manufactured both in Iran and in Russia.

Tusk has briefed NATO Secretary General Mark Rutte ahead of a previously planned allied meeting on Wednesday (today). Polish Pres. Karol Nawrocki has mentioned that Poland may invoke NATO Article 4. Article 4 triggers a consultation among allies to consider a military response when in the opinion of any member nation, the territorial integrity, political or national security of that nation is threatened.

This may have been a mistake made by the Russian military, whose leadership is notorious for its lack of precision and troops known for their lack of morale. According to Ukrainian Pres. Volodymyr Zelensky, who posted to his "X" account, Russia did launch an extra large-scale attack of more than 415 drones, and 40 cruise and ballistic missiles on 15 different regions inside Ukraine overnight.

This may have also been an attempt by Russian leadership to provoke NATO into intensifying already "cold war" like conditions in Europe. The Soviets had the Warsaw Pact. Russia will not. Let's hope these "dangerous games" that dangerous people play do not provoke more than anyone bargained for.

Not Fired Yet...

On Tuesday evening, U.S. District Judge Jia Cobb, a Biden-appointee, in Washington, granted Federal Reserve Board of Governors member Lisa Cook's request for a temporary court order that will allow Cook to continue on in her position for now. The ruling comes a week ahead of a crucial Federal Open Market Committee policy meeting that will begin Tuesday, Feb. 16 and conclude the following day.

Judge Cobb wrote, "Removal was not meant to be based on the President's assumptions about the official's future performance as extrapolated from unproven conduct dating from before they assumed the office." Later in her written piece, Cobb added, "The Court finds that permissible cause for removal of a Federal Reserve Governor extends only to concerns about the Board member's ability to effectively and faithfully execute their statutory duties, in light of events that have occurred while they are in office."

The U.S. Department of Justice is expected to appeal the decision and do so quickly with less than a week looming until the next decision on interest rates. That's not a lot of time, as this case is thought by some to likely end up in the Supreme Court. Under normal circumstances the next level would be the U.S. Court of Appeals.

Stunned by Jobs Revisions? Well ...

The financial media seemed shocked by the record downward revision of 911,000 created jobs across the U.S. from April 2024 through March 2025. I wrote in this column 24 hours ago that consensus among professional private sector economists seems to be for a revision of roughly 900,000. Guess doing one's homework is a dying art for many financial journalists. All they had to do was call a few economists.

The part that gets me is that actual job creation for that period was less than half of what the Bureau of Labor Statistics had been publishing in its monthly reports, taking the average monthly non-farm payrolls print from 147,000 down to just 70,000. During an election year, when getting this stuff right really matters. No wonder Erika McEntarfer was fired as head of the Bureau of Labor Statistics. She obviously never should have even been considered for the job.

I want readers to think about this. That downward revision of 911,000 jobs was from the final monthly numbers after the BLS revised the data over the two months following each initial report. The BLS had already revised those monthly NFP prints down 577,000 after markets and policy makers had already reacted. After Tuesday's preliminary benchmark revision, job creation for that twelve-month period stands an absolutely incredible 1.488 million lower than initially reported and reacted to by decision makers.

What this means is that the U.S. economy actually created just 847,000 jobs from April 2024 through March 2025, but votes were cast, policy was set, and investments were made in real time as if 2.335 million jobs had been created. Just a bit outside of the margin of error. Yes, there was a leadership change, but well after unknowable damage had carried on for quite some time. Federal agencies need to be held to private sector standards, so these things only rarely get out of hand like this.

Incredibly, Anna Wong, Chief U.S. Economist at Bloomberg and a former principal economist at the Federal Reserve Board, said: "When all the revisions for 2024 and 2025 are complete -- we won't get the final revisions until early 2026 and 2027 -- we expect they'll show the business cycle peaked around April 2024. It's possible the economy is either still in recession or is in the early phase of a new business cycle."

Imagine. A highly respected Bloomberg economist talking about backdating any recession to April 2024. That's a huge "wow" in my book. I mean, our 20- and 30-somethings have been telling us exactly this for a year. Did we listen? Carry on.

Marketplace

All three major U.S. equity market indexes closed in record high territory on Tuesday. That's if you still count the Dow Jones industrial average as a "major," which I do not and have not for about 30 years. Still, the S&P 500 gained 0.27 on Tuesday as the Nasdaq Composite added 0.37%, both good enough for new records.

The rally was not very broadly felt, though. Not even close. The Dow Transports and all of the small to mid-cap indices all closed in the red, while the KBW banks and Philly Semiconductors posted mild gains.

Obviously, transports and smaller caps are growth reliant and finding out that the economy may have been in recession for a year and a half without anyone picking up on it would have a negative impact on those names as well as on economically cyclical sectors.

Breadth

Seven of the 11 S&P sector SPDR ETFs managed to close in the green, led by the Utilities XLU, Communication Services XLC and Health Care XLV. Two defensives among the top three. That's not positive. Materials XLB, which are highly dependent upon growth finished the day in last place followed by two other cyclical sectors.

Losers beat winners by a 3-to-2 margin at the NYSE and by an 8-to-7 margin across the Nasdaq on Tuesday's record setting rally. Hmm. Advancing volume took a 63.4% share across composite Nasdaq-listed trade but just a 48.9% share across NYSE-listed trade. Did it matter? Not much. Aggregate trade was lower by 7.9% across NYSE-listed securities on a day over day basis and down 6.6% across Nasdaq-listed names day over day.

Apple's AAPL big launch event? Consumers may care. Investors did not. The stock was down 1.5% for the day. More than likely, traders were waiting for Oracle ORCL and GameStop GME results that came after the closing bell and this morning's August producer price index print. As night starts to melt into morning, I see ORCL and GME up 30% and 10% respectively overnight.

I Will Say This...

A watch that can monitor my blood pressure? An old Irish Catholic dude like me who likes his cheeseburgers and beer could go for something like that.

By The Way...

The U.S. Treasury Department auctioned off $58 billion worth of new Three-Year Notes on Tuesday. and demand was excellent. The auction "stopped through" where the "when issued" was trading ahead of the results and foreign accounts took down a near-record percentage of the issuance. The Treasury will bring $39 billion worth of new Ten-Year Notes to auction this afternoon. Rock on.

Economics 

(All Times Eastern)

07:00 - MBA 30 Year Mortgage Rate (Weekly): Last 6.64%.

07:00 - MBA Mortgage Applications (Weekly): Last -1.2% w/w.

08:30 - PPI (Aug): Expecting 0.3% m/m, Last 0.9% m/m.

08:30 - Core PPI (Aug): Expecting 0.3% m/m, Last 0.9% m/m.

08:30 - PPI (Aug): Expecting 3.5% y/y, Last 3.3% y/y.

08:30 - Core PCPI (Aug): Expecting 3.7% y/y, Last 3.7% y/y.

10:00 - Wholesale Inventories (February): Flashed 0.2% m/m.

10:30 - Oil Inventories (Weekly): Last +2.145M.

10:30 - Gasoline Stocks (Weekly): Last -3.795M.

1:00 p.m. - Ten-Year Note Auction: $39B.

2:00 p.m. - Federal Budget Statement (Aug): Last $-291B.

The Fed 

(All Times Eastern)

Fed Blackout Period.

Today's Earnings Highlights 

(Consensus EPS Expectations)

Before the Open: CHWY (.33)

At the time of publication, Guilfoyle had no position in any security mentioned.