Date: June 5, 2023

WHAT Will The Bears Say NOW?

I lost track of all the pundits and people who came into 2023 so negative, so defensive and so beared up. Those constant calls of a bear market, recession, inflation and the Fed gave me great chuckles for five months. And yes, some, many or much of the data pointed to recession coming, I kept hammering on the fact that the economy cannot be in recession or close to recession when hundreds of thousands of new jobs are being created each and every month. You had to just laugh at all those people who turned economics into politics, claiming recession began a year ago.

On Friday we learned that the economy created 339,000 new jobs in May, well ahead of the 190,000 forecast. However, the unemployment rate rose to 3.7%. The government also revised March and April higher by almost 100,000 new jobs. The 339,000 was another head scratcher for pundits who have been embarrassingly wrong on the jobs front. At some point, the jobs market will have peaked and, yes, it will weaken. That may start this month or over the summer or later in the year. I likened the Fed completing a successful and elusive “soft landing” to landing a 747 on an aircraft carrier. The deck of that carrier just grew in size.

With that stronger than expected employment report, bonds and gold sold off moderately as the dollar rallied. And stocks? Well, they soared with all the “have nots” taking the lead from the leaders like semis, software and anything AI related. 2448 stocks went up versus 451 that went down on the NYSE. I would say that for at least one day, the rally was rather broad. The real story was that the mid and small caps finally rallied in a huge way, closing up 3.23% and 3.63% respectively. You can see them below. While they were both outsized days, neither is close to breaking out like the leading NASDAQ 100 did.

Heading into the new week, I sense a lot of embarrassed bears are feeling the pressure to buy. First, they were hiding behind recession, the Fed and scary monsters. Then they cried about the narrow market being led by only 7 stocks. What will they say now? I think they have to start or continue throwing in the towel. They are woefully behind the 8 ball after five months in defensive portfolios. Their jobs are on the line.

On Thursday we bought TLT. We sold VGK and KIE. On Friday we bought LBNYX and DXHYX. We sold some levered NDX.


Paul Schatz, President, Heritage Capital