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Jobs Growth Meets Expectations, Unemployment Still 3.7 Percent

Posted: 05 Aug 2019 03:00 AM PDT

Job growth continues, but slows.

With markets focused on trade issues Friday, the July nonfarm payroll data came in, indicating that 164,000 jobs were added in the private sector. This matched expectations, and the unemployment rate remained unchanged at 3.7 percent.

Job increases were notable in sectors such as healthcare, financial services, and professional and technical services—all areas where high-paying, full-time employment is the norm.

Digging into the data, long-term unemployment—those unemployed for over 27 weeks or more, declined by 248,000 to 1.2 million. Long-term unemployed account for 19.2 percent of all unemployment.

Short-term unemployment—those unemployed for less than 5 weeks, rose by 240,000 to 2.2 million, indicating that some slowdown in job growth may come from recent layoffs.

The overall labor force participation rate, measuring the total percentage of the eligible workforce that could be employed, hit 63.0 percent—about where it has traded over the past month and year.

Among areas showing losses, mining-related employment declined by 5,000 in July.

Average earnings rose by 8 cents on average, following a similar 8 cent gain in June. Overall, average wages have risen by 3.2 percent in the past year.

Looking at the overall picture, the job market looks strong, but slowing, although wage growth is increasing faster than inflation. These measures show a solid economy, and one that is showing little impact from the trade fears hitting the market elsewhere.

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New Tariff Threats from U.S. Spur China Response

Posted: 05 Aug 2019 03:00 AM PDT

Country promises countermeasures following Trump tweet Thursday.

Following a tweet from President Trump on Thursday indicating that an additional 10 percent tariff on $300 billion of Chinese imports to the U.S. would start on September 1, Chinese officials responded.

Specifically, the country stated that it did not seek a trade war, but wasn't afraid of fighting one. Countermeasures would be taken should tariff rates go up. This renewal of verbal hostility has sent markets sharply lower.

Besides the tariff announcement itself, President Trump indicated that existing tariffs would be raised should Chinese officials continue to delay on a trade deal. The on-again, off-again trade talks have lasted for over a year, and have led to some large moves in the market as they grab headlines.

Sources at the White House state that the President's tweet was reviewed before being posted by trade and economic officials.

Between the renewed trade war fears and the Fed's handling of the quarter point rate cut, last week marked the worst week for the stock market in 2019, sending stocks well off their all-time highs.

Action to take: Stocks still remain bullish and outside correction territory—for now. The uncertainty created by the trade tiff will likely weigh on markets over the next few weeks, but could provide a buying opportunity, particularly for trade-heavy sectors like semiconductors that tend to get the biggest decline on these fears.

Unusual Options Activity: Square (SQ)

Posted: 05 Aug 2019 03:00 AM PDT

Traders bet earnings drop will be short-lived.

On Friday, traders bet on a higher price for payment company Square (SQ), following a drop on lower than expected earnings. A number of different options traded on unusually high volume, most expecting a bounce within the next week.

One big trade was on the August 9th $70 calls, which saw over 3,200 contracts trade against an open interest of 129, for a 25-fold increase in volume.

With shares of Square dropping from $80 to under $70 on the one-two punch of an earnings miss and a dropping market on trade war fears, the explosion in volume on trades expiring so soon is a bet that traders see shares as heavily oversold in the short-term.

Action to take: We agree that the drop was severe and overdone. However, trading within the space of a week can be difficult to allow time for the trade to play out.

A better trade might be with the purchase of January 2020 or even January 2021 call options, with a bet on shares moving to at least $75 or higher. While more expensive, having more time should give traders more time for the shares to recover—even if there is a big bounce in the next week.

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Insider Activity: MasterCard (MA)

Posted: 05 Aug 2019 03:00 AM PDT

First insider buy at company in 2019.

On Thursday, August 1st, director Lance Uggla bought 1,500 shares of payment processing company MasterCard (MA). The total cost came to $413,000, and increases his total stake to just under 4,700 shares.

This marks the first insider buy at the company for 2019, amidst a number of insider sales, most from the Mastercard Foundation, a non-management insider dedicated to charitable works.

MasterCard provides transaction processing and other payment-related products and services globally. This includes payment transactions, authorization, clearing, and settlement, mostly through its own and co-branded credit cards.

Along with Visa and American Express, MasterCard operates in an oligopoly of credit card payment systems, although there has been some inroad by alternative payment systems. Shares trade at a hefty 29 times forward earnings, although the company has been growing earnings and revenue by double-digits.

Action to take:While we like the credit card payment companies thanks to their competitive space and built-in profitability, shares of MasterCard are up nearly 36 percent in the past year—well above the rest of the market.

We would need to see larger buys from multiple insiders and a lower valuation to see a value here. But on a market pullback to $215 per share, it may look like an attractive space to start building a position.
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