Capital 19 Catch-Up

May Jobs Report Sends Markets Higher As Retail Investors Go On The Attack Against Hedge Funds Yet Again

The shortened trading week saw the market continue its sideways run for much of last week. That was until a lukewarm jobs report sent share prices higher to end the first week of June in positive territory. It was also a week where certain sectors benefitted in contrast to others. Energy stocks were prime beneficiaries of the spike in oil prices while reopening stocks were also on the move higher. The meme stocks also had another wild week, as the Reddit traders threw a few more spanners into the Hedge fund machinery.

With a final session surge, all three of the major indices finished the week higher. The Dow Industrials again led the way with a solid 0.7% gain, after rising for three out of the four sessions. The S&P500 benchmark index was just behind the Dow with a 0.6% gain, and along with the Dow experienced its second straight positive week. The Nasdaq rose for its third straight week, gaining 0.5% after initially being weighed down by the bigger tech stocks.

The May non-farm payrolls were the shining light of the week. 559,000 jobs were added in the month, well short of the expected 671,000, but much better than the disappointing April number which was revised to 278,000. John Briggs from NatWest Markets called it a “Goldilocks” number because it was “not too hot to bring in the Fed and not too cold to worry about the economy.” A lovely phrase.

The number was certainly in the Wall Street sweet spot. The Fed has consistently told us they won’t raise interest rates until employment is back to normal, regardless of inflation. It means any poor jobs number will keep the money tap turned on. However, the result was also good enough to suggest the economy keeps improving, which helps ease concerns over the strength of the recovery.

The number of coronavirus cases continues to fall across the US which is seeing the reopening stocks in the hospitality and travel industries gain some previously lost ground. More importantly more than half of all Americans have had at last one vaccine jab, with their attention now turning from adults to children. Overall 41.9% are fully vaccinated, while 63.5% have received at least one dose, and a Gallup survey indicated that 66% of Americans feel like their life is now back to normal.

This plays out in the holiday weekend travel numbers. The Transportation Security Administration advised that they had screened 1.78 million travellers over the long weekend which was a pandemic era high. It was 6 times more than the number of travellers on the 2020 Memorial Day weekend but is still 22% down on the number from 2019. You would expect these numbers to grow from here as a fully vaccinated country gets back to a more conventional way of life. This can only be good for the economy, and in the long term for Wall Street.

Not as good for Wall Street, but certainly just as fun to watch, is the chaos being caused by the Reddit traders. They were at it again during the week, signalling out their favourite stocks and attacking the short-sellers, who just happen to be mostly large hedge funds. It was cinema chain AMC Entertainment (AMC) who was the main target again. Never mind the concern that large movie theatres seem to be in a struggling industry. The retailers sent prices skyrocketing earlier in the week, with AMC up more than 22% on Tuesday, before leaping 95% on Wednesday.

Bed, Bath and Beyond (BBBY) also benefitted from the hysteria jumping 62% in the Wednesday session, while Blackberry (BB) was up by more than 70% at one point, finally closing up by 32%. In some whipsawing action, all finished lower at the back end of the week, however, AMC still made 80% over the four sessions, while Blackberry finished 37% higher. Bed Bath and Beyond could only hold onto a 9% gain despite being up by more than 50% at times. Interestingly, the chaos didn’t seem to hamper the broader market as it has in the past. Initially, the potential damage was considered an unknown, whereas the past few instances haven’t caused a ripple amongst investors – except for those with positions in these individual stocks.

Pandemic darling Zoom (ZM) reported earnings last week and produced some stellar numbers. Earnings per share hit $1.32 where analysts were expecting just $0.99c. While revenue hit $956.2 million, more than $50 million higher than expectations. Sales were up an impressive 191%, not quite as high as the 369% jump in the previous quarter, but still enough to impress pundits. This outrageous level of growth must slow of course, and it’s why Zooms share price fell initially, even though its guidance was better than expected. However, the stock was up a little over 1% by the end of the week. Zoom is still down by more than 40% from its high in October of last year.

The week ahead will be a quiet one on the earnings front as we await the new quarter at the end of the month. Gamestop (GME) will be closely watched though, as one of the leading meme stop stocks, while we’ll also see results from Campbell Soup (CPB), and Capital 19 stock pick Chewy (CHWY). The big talking point this week will be May’s Consumer Price Index which will give a final inflation reading before the next Fed meeting. Economists expect the CPI to hit 4.7% in May, after rising by 4.2% in April. Wall Street will be hoping the number stays nicely in the expected range.

Have a great week.