A buying frenzy resumed Friday, after a softer Jobs report lowered yields; a plus for sentiment; but remember in some sectors a recession portends poor interim earnings. We’ve already seen a good bit of that. Retail especially.Disassembling the Jobs data reveals more skepticism than the mild decline; what will matter is the ‘Fed’ recognizing the actual deterioration with adjustments taken into account, and what matters here is that it should ‘tame’ the Fed’s tone.
This coming week we’ll hear more from speeches by Fed Chairman Powell; at the same time expansion (or not) of the war will be of paramount important to the week’s start.I honed in (for hours assessing) today’s first public speech since the Mideast war began by rambling Hezbollah leader Hassan Nasrallah acknowledging an existing degree of cross-border fighting saying they “entered the battle.” He suggested escalation was possible: “We will not be limited to this.” But he gave little sign theyHassan Nasrallah. So far, Hezbollah has Hassan Nasrallah to show backing for Hamas (and perhaps whatever is commanded by Iran), without igniting an all-out war as would be devastating for Lebanon and Israel. I’m thinking it’s already wider; just on a lower level of engagement. I’ll stay concerned about cruise missiles fired from the East.The Jews understand what passive and powerless acceptance of doom has meant for them in the past, and they have ensured against it (just Google the ‘Samson Option’, or read my brief note about it later in this Daily). There is essentially ‘no risk’ of the current situation turning into another ‘Masada’ (at the same time Hezbollah and Iran know what Israel has; in terms of ICBM’s.. yup.. German submarines and F-35’s and F-22’s.. hence a multifaceted air-land-sea triad smaller than the U.S., but good enough.)I’m also concerned after listening to a few dozen global journalists discussing ‘relief’ that Hezbollah isn’t engaging; my take is (as it is impossible to mount a surprise attack with Israel mobilized and our Navy at hand) lookout for missile attack any given morning (even this weekend). Unless Iran doesn’t want it. It’s presumed (and thanks to a member who has extensive knowledge of Israel’s and the world’s advanced technologies) any missile launched (such as early Saturday from Gaza toward Eilat this time) would be immediately detected by the ‘worlds’ largest and highest (1300′ towers) radar facility (near Dimona) as is owned and operated (in case you wonder why the ambiguity when media describes a US/Israeli base) by..the United States…likely U.S. ‘Space Force’.
Market X-ray: stocks responded as we anticipated; albeit still frustrating, but that may be my personal disgust at what’s happening in the world and within our own society for that matter. It’s impossible just to assess markets without a soul basically and compassion as well as anger about the global situation.We got our turnaround; we got the rates paused; and the shorts squeezed. In that sense it was a good week; but doesn’t feel like it, and more risk ahead. In a sense the idea of November being ‘better’ plays-out; but it’s not clear sailing.As to the ‘war’ more Palestinian/Americans got out into Egypt; Israel seems to be willing to have a ceasefire ‘if’ the hostages are released.. all of them.. and if you think I’m inaccurate about Iran’s awareness of Israel’s capacity to really cripple their Islamic movement (or proxies); just read up on what’s involved; and also presume the U.S. Army is already in the Sinai securing ‘our’ radars.(Israel gets updates ‘if’ a missile is headed towards them, which was the case this morning from Gaza and last week from Yemen. The Agreement to deploy there was brilliant, and authorized by then-Defense Sec’y. Bob Gates… yes of my high school era in Wichita, but Bob was not my source for this report. This U.S. owned & operated base also picks-up missile launches from Russia and has been of help to Ukraine getting early warnings of Russian hypersonic or even aircraft movements.. and yes as part of global system, is tied-into Iran-launch warnings too; instantly notified to NORAD in Colorado.. seriously.)I’m glad we believed the market was hammered so hard it was about to rally; off both an oversold overall market; and a pullback from absurd price levels in a lot of mega-caps. I viewed it as the ‘nadir of a trough’ over a week ago and it was. The caveat was if the ‘war doesn’t expand’. I think it actually has, but the markets see it as more of a stalemate. I see it as Israeli encirclement the hard way of Gaza City; cutting it off from the South. That’s also why they warned all civilians to move South; and generally the IDF did not bomb below the area of interdiction. On Saturday all of Gaza ‘north’ is effectively a ‘free-fire’ zone.It’s hard not to have mixed feelings about the reprisals; then one looks at the face of Israeli soldiers who gave their lives and it’s sobering. I recall (I believe the 1973 war), Tel Aviv didn’t reveal there were a few hundred fatalities, which weren’t initially revealed to the public. I fear that here. I also realize that Israeli economics are seriously compromised the longer their reserves are mobilized but that’s part of the pressure they have from Washington not to ‘go rapidly’.
There’s one more thing: for the first time in history, a people more than once having faced extermination while the world either supports, attacks victims, rather than understanding the Hamas barbarism, or just looks away.. well the antagonistic Islamic crowd better understand ‘why’ they cannot win ever, and would be destroyed should they come close. That’s the ‘Samson Option’ that almost got tested on a mountain in 1973, but that mountain was captured by the IDF before Egyptian forces could occupy the Sinai; so no demonstration.It may also be ‘why’ President Nixon then, and President Biden now, hesitate not for a moment in backing up Israel with what they need. Plus in this case of the massacre at the Music Festival and kibbutzim, Israel has righteous anger. That is not to demean the plight of Palestinian civilians, but it’s Israel who can make them ‘free’, by virtue of eliminating Hamas and preventing autocracies.
Meanwhile.. here’s a hint of slowing business activity; although I can’t divide it into domestic vs. international transit. FedEx pilot crews have now been told that – despite the presumed national pilot shortage – they are overstaffed, given that ‘air cargo demand is down’.FedEx pilots are receiving minimum flight hours only, for the most part, and they expect that to remain “for the foreseeable future.” This is becoming an industry-wide issue and has to relate to consumer buying and/or exports too.In any event, FedEx went further, oddly enough telling its pilots to go work for American Airlines through one of their regional airlines. Well American might not need more for now; JetBlue sure doesn’t; and Delta has different issues.It also is ‘shoulder season’ where I thought airline business would soften; even as ‘forward bookings’ for Summer travel have been strong.. until the war and a bit of rethinking. United, American and Delta all had strong Israeli traffic demand, and will again after Israel wins this war. Meanwhile, ‘only ‘El AL’ Israel Airlines has incoming anti-missile jamming electronic defenses; and on their 777’s and I believe A330’s, but not on their top-of-fleet Boeing 787’s. El Al and even Etihad are flying passengers out of Israel to Athens or Doha, where they can catch flights anywhere. Australia was offering flights in their military cargo aircraft but few takers; as most took normal comfortable commercial flights. Air New Zealand, Lufthansa and even Ryan Air flew in or are still operating; the American carriers claiming ‘insurance’ as to why not. Of course there’s one Boeing 757 at Ben Gurion Airport now: Sec’y. Blinken’s.
Bottom line: the market lifted some pressure off a lot of suppressed sectors, while the mega-caps were mixed, with Apple’s sobering results predictable, but affecting it anyway. Even EV-related stocks and Semiconductors caught a bit, but there’s no reason to expect much upside yet especially in Autos or in Retail. Oils remain defensive; but increased fighting that involves sanctions on Iran again, would ramp Oil higher fast, and drop S&P in a ‘reassessment’.Given a military engagement with Iran (which they’re trying to avert by having proxies attack the United State facilities and our ship (USS Carney) .. which Sec’y. Austin said ‘was’ the target, despite media saying Israel was.. that was interesting as the moment you say US Navy was targeted; this ramps to a higher level. And for the sake of the U.S. consumer, already more strained vs. what statistics show, higher Oil is what Biden wants to avoid. Complicated.More upside is entirely contingent on getting through this weekend. I wouldn’t chase, if you were a nibbler during the ‘trough’ a week ago; good for you, but I would not get carried away with enthusiasm either. More work to be done; as well as prevailing geopolitical risk. Perhaps meeting with China over controls of nuclear weapons, while Russia withdraws from nuclear accords, would be a good development; but let’s see if that actually happens. And of course with a prayer that Russia isn’t doing that just before they ‘use’ an atomic device..Enjoy the weekend; stay calm; vigilant, and yes.. stay safe.
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