@theMarket: Stocks Pull Back From Highs, Led By Tech

The non-farm payroll numbers for May, announced on Friday, were met with dismay by the market. The consensus forecast was for a gain of 89,000 jobs. Instead, the Bureau of Labor Statistics announced 172,000 and revised the last two months of jobs data upward. Together, that amounted to the strongest three-month stretch of job growth in two years.

 

You might think the stock market would celebrate such good news, but all three averages declined more than one percent on the news. This was a classic case of what is good news for Main Street may not be the same for Wall Street.

 

It comes down to interest rate expectations. Investors had already reduced their expectations for any interest rate cuts this year. This is despite a new Fed president whom many believe is beholden to the president's easy-money demands. The reasons are obvious.

 

Inflation continues to climb, helped by oil prices that hover above $90 a barrel. On June 10th, another Consumer Price Index reading will be released. Readers already know I expect that number to show inflation climbing even higher. And now, the last hope of interest rate bulls has been dashed with the jobs report.

 

The Fed's mandate is to keep employment buoyant and inflation at 2 percent. Stronger labor gains leave the Fed on the sidelines, but it is worried about rising inflation. Some members of the FOMC committee, which meets June 16-17, are already contemplating a possible rate hike sometime in the future. That is not good news for stocks, bonds, commodities, and much else.

 

In the meantime, the financial media has been hyping SpaceX's pending IPO all week. Evidently, the price has been set at $135 a share, which values the company at $1.77 trillion. It would make the rocket/AI/Bitcoin firm the seventh-largest company in the U.S. Pricing the offering prior to the scheduled launch date was unorthodox and "not how it's done," according to the traditional underwriting community. However, given that Elon Musk is in charge, one should expect some unorthodoxy.

 

As for the market's pullback this week, it should come as no surprise. It was about time. Nine straight weeks of gains had to come to an end at some point. Profit-taking began midweek and continued through Friday. Most of it was centered on the technology area.

 

Broadcom, one of the largest semiconductor companies, disappointed investors earlier this week when its AI chip forecast fell short of expectations. That seems to be the straw that broke the market's back. That may be so, but I believe traders were looking for any excuse to take profits.

 

As for the ongoing embarrassment in the Middle East, even Trump's congress seems to have had enough. The Republican-controlled House passed a continuing resolution this week directing Trump to end the war in Iran. The extended ceasefire continues to play out and oil remains above $90 a barrel.

 

I expect we will continue to see selling next week as markets work off their overbought and extended condition. Is this simply another buying opportunity, or is it the beginning of something more serious? I wish I knew.

 

 At this juncture, I'm betting on a quick 5 percent pullback. That's something we see three or four times a year. The decline has been largely led by semiconductor and AI stocks. That makes sense given those are the areas that have seen the greatest price appreciation. Who knows, the pullback may set us up for next Friday's SpaceX IPO and reinvigorate the tech trade.