Stocks, Bonds In Game Of Chicken With Fed, Economy

Who will blink first?

That's the essential question, especially whenever stocks advance in the face of disappointing news or data.

Just today, basking in the afterglow of Independence Day, the data was far from convincing of the official narrative that the economy is clicking, unemployment is low and happy days for all are just over the horizon.

Unemployment claims were higher than expected. For the last week of June, 231,000 were receiving government benefits. The low number of unemployment claims is partially due to a number of factors the government number crunchers don't readily report. First, there are no more extended claims. In most states, it's 26 weeks. That's it. Find a job in six months or be relegated to the "out of workforce" brigade, which are not counted in the official figures.

Additionally, with so many baby boomers retiring (supposedly at a rate of 10,000 a day, though it's likely much lower), there should be jobs aplenty. However, many of those older folks are not being replaced. Corporations are saving through attrition, or, at best, hiring replacements at much lower wages with fewer benefits.

Then there's job growth. The numbers delivered by ADP this morning were uninspiring. Private employers added 177,000 to their payrolls, well below the expected 190,000. Prior to the opening bell on Friday, the BLS releases the non-farm payroll data for June, which is expected to come in at around 195,000 new jobs, but whether the numbers match expectations or not, almost anybody with a functioning brain knows that the data is largely fudged and massaged and generally not reflective of local conditions.

Thus, the wizards on Wall Street are playing chicken in the market, and well they should. The Wall Street elite have the ability to hedge, shed positions before the general public, and make moves faster than anybody else, especially the home-gaming day-traders. They are selling when everyone else is buying and vice versa. They're pros. That's why they're making mega-bucks on Wall Street and you're not.

The Federal Reserve released the minutes from June's FOMC meeting at 2:00 today, which initially sent stocks down, but they recovered to close near their highs. The minutes sent mixed signals, but little to suggest that the Fed would not raise the federal funds rate by another 25 basis points in September, despite a flattening treasury yield curve, which is a harbinger of an economic downturn.

Again, the market pros played chicken and bid up stocks in the face of the Fed minutes which revealed little beyond what was already known.

Bond yields edged slightly higher, except for the 30-year, which shed one basis point to 2.95%. Spreads on the 2s-10s dipped to 29 basis points, and the 2s-30s dropped to 40 bips. Bond traders are staring directly at a flatline instead of a curve, with potential for inversion a real concern. They're selling the short end, buying the long, challenging the Fed to tighten twice more this year, a move that almost certainly would send wild signals through the trading community.

If all of that isn't enough to churn the stomach, Trump's China tariffs go into effect at midnight EDT.

Chicken. It's not what's for dinner. It's what Wall Street plays these days.

Dow Jones Industrial Average July Scorecard:

Date	Close	Gain/Loss	Cum. G/L
7/2/18	24,307.18	+35.77	+35.77
7/3/18	24,174.82	-132.36	-96.59
7/5/18	24,345.44	+181.92	+85.33

At the Close, Thursday, July 5, 2018:
Dow Jones Industrial Average: 24,345.44, +181.92 (+0.71%)
NASDAQ: 7,579.59, +83.75 (+1.03%)
S&P 500: 2,735.07, +21.85 (+0.81%)
NYSE Composite: 12,564.92, +90.53 (+0.56%)