It's All About Jobs, Oil and Bombs

Market_Recon_TSP1_KL

We're here. We stand at the precipice of another weekend. Often, I think traders will approach Friday mornings with a bit of excitement. Weekends are hard-earned in this business, similar to many industries I suppose that run on a Monday through Friday cycle, but I have no experience in those worlds. This is the one I know.

The raccoons scurry about their nocturnal scavenger sessions. The snakes slither through the grass. Cats and coyotes hunt the nearby wilderness. The birds? They are mostly sleeping. If you see them, they probably aren't birds. They are probably bats. Full moon hidden by cloud cover. Not too many stars tonight. Zero dark-thirty. Welcome to my world. Just two men, the one on the computer and the one in the blackened window working on a game plan for the day ahead.

Jobs day. Today is the day that the Bureau of Labor Statistics will publish the results from its two labor market surveys for February. This monthly occurrence is usually a pretty big deal for the trading and investing crowd. Algorithms often overreact to whatever this federal agency releases in an almost blatant attempt to force price overshoot. Interestingly enough, the two surveys rarely come close to painting the same picture for any one month's national performance in job creation and the two often don't agree with the ADP print, which came out on Wednesday for February.

So, the process that somehow passes for price discovery in the year of our Lord 2026 will react to data that probably is not very accurate and will almost certainly be revised, sometimes significantly so, in the months ahead. That said, while equity markets have struggled this week, it may be a fact that this data as well as the January numbers for retail sales (released by the Census Bureau) has kept the markets from falling into a state of panic as the geopolitical situation in the Middle East deteriorated into a state of uncertainty.

Supposed uncertainty. I say that because if the U.S. is using the B-52 Stratofortress to bomb targets in Iran, then we must have absolutely zero concern about air superiority. That means that the U.S. believes that the Iranian Air Force has been completely degraded to the point of impotence and that means that the U.S. believes that Iran's surface to air defenses have all but been eliminated.

These craft, nicknamed the "Big Ugly Fat Fellow," have been in service since 1955 and are no match, despite having been modernized for 21st century anti-aircraft systems. However, once air superiority is attained, there is no craft better at the saturation bombing of priority targets. The B-52 can deliver 70,000 pounds of conventional (or even nuclear) ordnance and can fly 8,800 miles. hitting 650 mph without refueling, while observing a ceiling of 50,000 feet. This craft can also be used to jam enemy radars. If these "fellows" are on the scene, it's almost "game over" for the enemy.

The Why

For the fifth consecutive session, the S&P 500 failed to make contact with its own 50-day simple moving average. That is often seen as a prelude to a heavy selloff. Though there has been some pressure on equity prices, there has been no washout. The index has remained relatively close to that 50-day line, while maintaining contact (or very close to it) with its 21-day exponential moving average. That keeps the swing crowd engaged even if the pros have ever so gently reduced some long-side exposure. It may have been this Friday morning data that kept "the troops" from running for the hills on Wall Street.

Tanker traffic through the Strait of Hormuz remained at a standstill on Thursday as Iran attempted to attack cargo vessels in and near those waters. Iran has also, though its supplies of munitions appear to be dwindling, attacked the Ras Tanura refinery in Saudi Arabia causing a second fire at that facility, attacked two fuel terminals in the UAE with drones, causing fires at both and attacked fuel tanks at the Port of Duqm in Oman. These actions forced market prices for energy commodities to spike on Thursday and that's where the pressure on stocks primarily came from.

WTI Crude oil soared 7% on Thursday to $80 per barrel. Overnight, these contracts have increased further, to $84.40 at last glance. I now see Brent Crude trading at $87.25 per barrel. Prices for Liquefied Natural Gas, which the Japanese and South Korean economies are highly reliant upon, have soared as well. Shipping costs have spiked even more sharply. Charter rates on Friday morning for LNG carriers are running at $300,000 per day, up from $40,000 before the war.

Yes, this is highly inflationary, on a global scale. Does that mean that even a Kevin Warsh-led Federal Open Market Committee would be unable to reduce rates? That depends on how long this condition lasts. Treasuries have tried to price in this coming bout with increased consumer-level inflation. The U.S. Ten-Year Note pays 4.17% on Friday morning, up from 3.93% after the start of the war had caused some safe haven seekers to apparently get their faces ripped off.

On That Note...

Defense/War Secretary Pete Hegseth told reporters on Thursday that the U.S. is facing no shortage of either offensive or defensive weapons. Hegseth even said that the amount of firepower over Iran "is about to surge dramatically." Enter the Stratofortress.

In other war-related news, the House of Representatives, on Thursday, voted down a war-powers resolution that would have limited Pres. Trump's authority to wage war on Iran. The president did say that Iranian diplomats should request asylum and help shape what comes next in Iran. The president also told reporters that he must be involved in selecting Iran's next leader.

Easy to Miss...

I would bet that many folks simply missed the fact that the U.S. and Ecuadorian militaries carried out a joint strike on Thursday, targeting powerful criminal gangs as the administration's war on drug traffickers expanded.

Stand

You can make it

Stand - you can make it

Stand - you can take it

Stand - realize that nobody can break you

If you stand - you can do it

Stand - go right to it

Stand - nobody can do a damn thing to you

But you can't stand, if you don't care

Can't stand, if you don't dare

Can't stand, if you're running scared

Forget you're blood and bone

Stand like you're made of stone

Stand - on your honor

- Campbell, Michael, Kilmister (Motorhead), 1992

Marketplace

It was red up and down the screen on Thursday. The Dow Transports led the beat-down, as one might expect with oil prices surging. That index gave up 2.93% for the session as the airlines were pummeled. The S&P 500 (-0.56%) and Nasdaq Composite (-0.26%) hung in there fairly well, but the broader market was slapped around pretty good. The KBW Banks, Philadelphia Semiconductors and Russell 2000 all suffered significant losses.

Eight of the 11 S&P sector SPDR exchange-traded funds closed out the day in the red on Thursday with four of these funds giving up at least 2%. The industrials (XLI) and materials (XLB) suffered for obvious reasons. Energy (XLE) led the winners for reasons just as obvious.

Losers beat winners by slightly less than three-to-one at the NYSE and by more than nine-to-four at the Nasdaq. Advancing volume took just a 28.9% share of composite NYSE-listed trade on Thursday, but a surprising 53.9% share of composite Nasdaq-listed activity for the day. Trading volume expanded on a day over day basis across the listings of both exchanges as well as across the membership of the S&P 500.

The index has now developed a basing period of consolidation or "rectangle" pattern. These can provide the catalyst for a breakout in either direction. The S&P 500 has tested lower trendline support twice in the past three sessions now. Should that line crack for good, the 200-day simple moving average becomes a realistic possibility.

That said, the 50-day SMA to the upside also remains realistic and could provide the juice to at least take the index back to the top of the range. Interesting to note... without an imminent upside move, this rectangle could evolve into a Falling Wedge, which is ultimately, a pattern of bullish reversal. Yes, I remain medium to long-term bullish myself. Short-term? Can I let you know after the jobs report and after the B-52s start pounding targets in earnest?

News

- The U.S. Department of Commerce has proposed regulations, in draft form, that would restrict AI-capable chip shipments to data centers anywhere in the world without what would be required permitting. Shares of both Nvidia (NVDA) and Advanced Micro Devices (AMD) fell on Thursday as these rumors made the rounds. Under the draft rules, a tiered system would be created that weighs both the size of the orders placed and the investment made by the home country placing those orders, in U.S. domestic infrastructure.

- Twenty-four states have now sued the Trump administration over the new tariffs imposed after the Supreme Court ruled that the president's original tariffs had been illegal. These mostly blue states filed a suit with the Court of International Trade on Thursday to block the tariffs enacted recently under Section 122 of the Trade Act of 1974. That act permits the U.S. president to impose tariffs of up to 15% for a max of 150 days. The states claim that this act cannot be used to address trade deficits.

February Employment Situation (08:30 ET)

Non-Farm Payrolls: Expecting 59K, Last 130K.

Unemployment Rate: Expecting 4.3%, Last 4.3%.

Underemployment Rate: Expecting 8.0%, Last 8.0%.

Participation Rate: Expecting 62.5%, Last 62.5%.

Average Hourly Earnings: Expecting 5.0% y/y, Last 5.1% y/y.

Average Weekly Hours: Expecting 34.3, last 34.3 hours.

Other Economics

(All Times Eastern)

08:30 - Retail Sales (Jan): Expecting -0.2% m/m, Last 0.0% m/m.

08:30 - Core Retail Sales (Jan): Expecting 0.0% m/m, Last 0.0% m/m.

10:00 - Business Inventories (Dec): Expecting 0.2% m/m, Last 0.1% m/m.

1:00 p.m. - Baker Hughes Total Rig Count (Weekly): Last 550.

1:00 - Baker Hughes Oil Rig Count (Weekly): Last 407.

3:00 - Consumer Credit (Jan): Last $24.05B.

The Fed

(All Times Eastern)

1:30 - Speaker: Cleveland Fed Pres. Beth Hammack.

Today's Earnings Highlights

(Consensus EPS Expectations)

No significant quarterly earnings scheduled.

At the time of publication, Guilfoyle was long NVDA, AMD equity.