Revolving door markets labor - to resolve high-level disconnects between a majority of super-cap stocks and the rest of the market. There is rarely large movement from a Jobs number; and there is every reason to note the wages, continuing higher, which is sort of the 'stagflation' we've warned about.

The consumer cyclical trade will be softer over the next couple months; more so than seasonal behavior; but the hand-wringing should relate more to Covid which hasn't really hit (delta variant) in the Northeast yet; but likely is coming.

There's another issue that always lurks but never strikes. That's Japan, where Tokyo replaced China in our Treasury market; and where the Yen is viewed as 'funny money'. It's why the Euro hasn't collapsed as a result of negative rates.

Why? Japanese buy bonds in Europe at negative yields and have European bond redemptions provide Euros later. They see negative yield as just costs of getting something for nothing. Or as I've heard: real Euros for funny Yen. I suppose you could extrapolate that to 'Funny Greenbacks for sketchy Yen'. I'll outline this later in this report; but it's speculative and depends too on whether the 'ruling party' in Tokyo maintains control after the PM's resignation; and for sure the tougher issue: moving from BoJ capital injections to fiscal stimulus.

You've had a rolling correction for months; that's one reason I've allowed for a shakeout or S&P correction; but not catastrophic collapse the doom & gloom crowd seeks. I've not even embraced institutional models calling for 2 year contractions; and all that. It's based on superficial glances at the economy or global growth; and doesn't really have 'health' factored-in sufficiently.

Hence it 'is' about Covid; and even today the New York Federal Reserve, to my surprise, 'suspended' their Nowcast forecasting model, saying it's broken, and I disagree. It's not broken; it simply doesn't factor-in the Covid variable. It is 'delta' based and now we have 'Mu' coming from South America; and that's not concerning to Dr. Fauci, which probably means we'll have to deal with it in the months ahead; because epidemiologists say it may bypass antibodies (so again a reason we need antiviral drugs, better monoclonal antibody cocktails; and 2nd gen vaccines that protect in different novel ways).

Executive summary:

• The Jobs number is not key; it was appropriate considering Covid / delta; and basically the estimates were excessively high;
• Jackson Hole gave a timeline for tapering and eventual hikes; and that's fine; but may be accelerated or delayed depending on the effects of Covid on 'consumer behavior', which contracts 'a little' even if no shutdowns;
• The Northeast and Nation (after schools are open a bit) likely suffer yet another Covid wave; I've talked about that; and now Dr. Gottlieb has too; and that matters because the 'peak Covid' was only for a few days;
• Covid / Mu (Colombian / Ecuadorian variant) 'is' an impediment to any significant recovery 'if' it proliferates in the United States; as it has some capacity to override antibodies;
• As this remains unknown it could throw things back into reverse, even though the economy remain sort of open; Dr. Fauci says 'Mu' is not a concern; which probably means it really is; just isn't quite as of 'yet';
• Covid is a determinant of how econonometric models 'err' pessimistically, and today the New York Federal Reserve has suspended their 'Nowcast' model; saying methodology needs tweaking;
• I rarely write about economic models; but I did last night, with no idea the NY Fed would suspend theirs today; they are having a kneejerk reaction and not considering there's 'nothing' wrong -but missing- with their model;
• You just have a whiff of stagflation and a variable (Covid), for which you cannot time the recovery anywhere near accurately; Lilly says that their re-authorized antibody treatment addresses 'delta' but let's see data; if it does that matters, although anticipate broader low-dose mAb's coming;
• So I am amazed an economist or the NY Fed would question their model rather than admitting it's simply not knowing the duration of vaccines; new ones; or treatments that effectively allow everyone to return to normal life;
• Profits are growing amidst this; but not at a super level; and supply-chain issues are part of the problem, which goes beyond semiconductors hard to obtain for the automobile industry so dependent on chips;
• Ford sales are 'chip-wrecked' due to the semiconductor chip shortage we all know about; and ideally fears they can't make it up (they will) perhaps drives share price down to where it become fairly low-risk for entry;
• I've mentioned 'insurance companies' limiting coverage exposure in the flood-prone as well as low-lying coastal areas; and fire risk regions too; so I am not surprised 70% of Southern homeowners affected by Ida didn't have flood insurance (separate from hurricane coverage interestingly);
• Corelogic had a good report noting big carriers have limited exposure as well as how it's almost impossible to get coverage in California now; so if you want to properly insure a home in the (once Golden) State, consider the cost of homeowners, flood, and earthquake coverage, as well as the requirement by virtually all lenders that you do all have total coverage, as mortgage issuers want to protect their interests whether the homeowner is willing to risk it or not;
• Along those lines, the latest selection of states factor areas like living costs, taxes, weather and healthcare; generally acceptable to those at or near retirement years, Georgia and Florida are top of the list; if you add good business environments, include Texas and Arizona in the group;
• Many are overlooking the end of certain pandemic Government benefits; which commences this weekend; hence some spending stimulus end;
• FYI; Dr. Robin Smith, on the Boards of Cellularity and Sorrento; today exercised her 175,000 share option to 'buy' Sorrento shares; they didn't expire for 8-10 more years; so she either exercised to sell for personal reasons; or she is very bullish and is doing so for a different reason;
• Next week's solemn observation of the barbarian terrorist 9-11 attack on the United States, may be preceded by initial releases of documents that likely implicate Saudi Arabia in the financing some aspects; that's terribly sensitive to the always-dubious relationship with the leading Oil country; and might have ramifications; we'll see how much Gov'ment redacts.

In-sum: economists are too worried about what's happening under the hood of the economic engine; when they really should realize all that's needed will be effective treatments and better vaccines to 'fuel' the engine; which then is going to run smoothly as we move higher in the 'Roaring 20's' later phase.

Most schools in the Northeast start after Labor Day; not before like out West. So that's the basis (plus holiday crowds showing symptoms) for concerns of another Covid wave around mid-month and thereafter. I've suggest that and Dr. Gottlieb this morning concurs. 

Conclusion: Covid, not the Fed, is a possible spoiler for economic growth in the near-term; and once it's resolved by 2nd generation vaccines or antivirals, we can anticipate a resurgence of favorable economic activity really globally. Globally it's Covid and Japan (PM resignation may be significant; see below).

The S&P should be reeling more; not from the Jobs number 'disappointment', to all who expected better (not us; Covid); and although there was the trend toward higher prices, that's not a plus here. Some analysts think it is; however higher wages with lagging economic activity is 'stagflation', which we have.

Strategists talk about infinite central bank liquidity pushed into the market and warn we might get a dip in the Fall 'if' things slow. I think it should be sooner, because valuations are on the high side for the 'grand dames' to say the least, and if you know (and we will in a couple weeks) Covid / Delta (much less Mu) is a problem that stalls everything; well why would S&P hold together? Then there's the kamikaze threat; if Japan attacks our bond market (below).

Remember there's a problem with the vaccines even as we're told how they're fulfilling the original promise of preventing severe disease (to a degree so far).

Proof of this is from the country that warned the world of 'waning efficacy':

• Israel recorded 1,892 cases per million people on Wednesday as nearly 0.2% of the entire population in a single day tests positive or was sick;
• Despite being one of the most vaccinated nations in world, the country is in midst of an unprecedented new wave; and they mostly used Pfizer; (I know, the BionTech vials which generally come from Germany, but are essentially identical to those coming from the U.S.);
• Fears the U.S. could now follow suit (with rapidly waning efficacy) has led to growing calls for mass booster vaccine rollouts this winter; which some experts oppose; but others (including Dr. Gottlieb who sits on the Board at Pfizer) say the first 2 shots 'prime a person'; and the 3rd is real protection; sounds like a good way to shape their argument, but time will tell on that;
• The renewed prohibition of Americans being allowed travel to Europe in general, is a reflection of the revelation about vaccine inadequacies, and is impacting stocks related to that again; which is mind boggling to airline and other executives making big moves to restore their full services; not just the stocks are hurt, but revenues will clearly be impacted;
• Again there is complacency about this as officials don't want to recognize the panic to get vaccinated resulted in moderate protection that wanes;
• All this emphasizes the need for 2nd generation better vaccines and also 'cocktail-style' monoclonal antibodies that are low-dose; low side effects;
• Many big-caps are backing-and-filling slightly; with most technicians now calling for upside breakouts ignoring short-term failure patterns probable given the upsurge in Covid in a couple weeks (Northeast especially); and the big unknown, which is 'when' we'll get better treatment antiviral drugs.

One more thing: sayonara to the carry-trade(?); unlikely but possible:

• There's going to be more chatter about whether Japan's Prime Minister's resignation results in changes to the massive capital flows (carry-trade); as Japan pouring money here; has helped levitate our market after China stopped buying Treasuries;
• It is not assumed that everything will be turned upside-down with Japan going to fiscal stimulus rather than central bank injections; but if that does occur it's probably the greatest threat to break the U.S. bond market;
• If the U.S. Bond Market loses major Tokyo support; the Yield-Curve does steepen (we may see hints of that now); and that makes Japanese stock markets more attractive, while negatively impacting ours indirectly;
• Notably this is a representation of 'what could go wrong' without the Fed making any sort of monetary policy move; though that's out there too.

To summarize / expound on this a bit. Japan continued to keep interest rates low. A cheaper yen and strong dollar make Japan's exports cheaper. Japan's also one of the largest owners of U.S. debt; China too; but China's holding not buying. Japan's a reason for U.S. Treasury stability, keeping bond yields low.

Japan keeps our long-term interest rates low even when the Federal Reserve raises short-term rates. Japan's drive to keep Yen weak relative to the Dollar, has other consequences. Most commodities contracts, including oil and gold, are priced in dollars. When the dollar is strong prices of such commodities fall. A lower Dollar can drop Bonds, but threatens to also weaken equity demand. And that's your connection in general to why I tend to be a Dollar bull during favorable stock market phases; even as most analysts mistakenly think that a weaker Greenback is desirable. No it's not; and if Tokyo does do that; we will not be going Japanese (which means we won't threaten negative rates other than as we already do.. inflation adjusted).

S&P holds together because money managers are 'hiding' in the super-caps, as I've outlined before; and what happens with Covid can only push managers to pare-back more; because that's what they've done outside of sector leading stocks. That's what's given the superficial appearance of greater strength.

Lots of drags on the market Friday; some Banks and Oils retreating, after the bounces earlier in the week. This week is not a 'yield' story; nor credit cards in the Financials so much; actually Banks have been relatively resilient. Oil was firmer this week more on New Jersey being idled; then faded Friday as they gave second thoughts and realized refineries have to operate to need the Oil, and that's going to be quickly in New Jersey; a little slower in Louisiana.

Conclusion: relieving pressure in various areas matters (semiconductors and automotive); and missed in most discussions are back-channel discussions at the behest of health insurers, relating to the collapse of the supply chain over the past year and a half; and insufficient Medicare reimbursements and more.

That insurance issue (on-top of the natural disaster implications to frequently the same carriers) is just part of the concern as we move to end the pandemic triggered Unemployment coverage (and Federal loans that were often abused are generally gone, often without Gov'ment trying to be repaid) ... and these things come together to contribute to slower growth immediate term; but high growth down-the-line as reconstruction takes place.

Travel & hospitality are softer. Just looking at trucking or shipping in general (container rates soaring too); it's all inflationary, and I hear Government officials telling us price pressures of inflation are mitigating; that's entirely an illusion.

The charade of the S&P and NDX at records while most stocks languish, isn't an illusion; but it is a cover-up that's been ongoing much of the year. Covering the distribution (including of Chinese and even other emerging market stocks too; though China is not really in that category); covering distribution was the concentration into a handful of stocks; and that's where the vulnerability is. It's not to say the S&P won't continue to 'thread the needle' and hold together