Broad Stock Selloff Presents Opportunities; Friday Jobs Report Looms Large

DOW Erases All 2014 Gains On Broad Selloff; Friday Jobs Number At 0830 Looms Large; These Kind Of Selloffs Present Opportunities

All three major stock indices experienced a broad-based selloff today as investors stampeded to the exits. What is more worrisome, is that the selling accelerated into the close on big volume — a strong indication that this selloff likely has legs. There were a plethora of excuses and you could take your pick as to what sparked the stampede and changed sentiment on the street. Some analysts cited Argentina’s debt default, others said the +4 percent GDP in quarter two of this year, others cited the Fed, Ukraine, etc. None of this was knew; and, none of it wasn’t known going into the trading day. It is an example of how difficult it is to call a correction; or a bottom. These things don’t matter — until they matter.

“It’s a combination of the Employment Cost Index (ECI) coming in hot, as well as the Argentine situation,, which we don’t think is a contagion situation; but, it was the straw that broke the camels back,” said Jim Russell, Senior Equity Strategist for U.S. Bank Wealth Management. “The market has been extremely resilient over the course of Ukraine, Iraq, and now Israel; to pile on a bad macro number and a default is asking too much,” said Russell.

The Labor Department reported U.S. labor costs rose the most in more than five years this past quarter, with the ECI climbing 0.7 percent, — the biggest rise since the third quarter of 2008.

The DOW lost 317 points, or 1,9 percent, while the Standard and Poor’s 500 lost 39.4, or -2 percent, and the NASDAQ lost 93 points, or -2.1 percent. All ten S and P sectors lost at least 1 percent and most more.

Tomorrow Morning’s 0830 Jobs Report Looms Large For Tomorrow’s Market

Tomorrow morning, 0830, Friday August 1, we will get the Non-Farm Payroll report on the number of net new jobs created in the U.S. in the month of July. Consensus on the street going into tomorrow’s number is something in the neighborhood of 250K. If we get a number in the 280K range or higher — good news might be bad news in this case and likely will portend more selling. A hot jobs number, combined with a Q2 GDP of +4 percent is likely to be seen as evidence the Fed will have to accelerate its timetable for raising rates. Something too weak might also spook traders as indications that the economy isn’t as robust as some think. We need a number near the consensus of 250K in order for traders not to get spooked.

Art Cashin, one of the grand-old sages on the street, and the Director of UBS Floor Operations in New York, said the stock market could suffer a decline, should one of three major things come to pass: 1) and perhaps the biggest concern he said, “is whether a jump in labor costs will force the Fed to hike interest rates sooner rather than later. Immediately that started “the Fed’s behind the curve talk again and we took the yield on the 10yr. dangerously close to 2.6 percent. The big thing to worry about here is if it begins to look like the Fed has lost control,” he said. “A second headwind for the market is Argentina’s default, and the potential for contagion. Thankfully,” he said, “the feeling of contagion hasn’t really quite spun out.” “Finally,” Cashin said, “investors should pay close attention to the technicals.” To Cashin, “the critical area for the S and P 500 is the 1,950 level. If it doesn’t hold 1950, that will be a problem.”

The S and P closed today at 1930. The next major technical level on the S and P is near the 1860-1875 level — which would be another 3-4 percent to the downside. As I noted earlier, tomorrow morning’s 0830 jobs number looms large. If we do get follow through tomorrow, watch the last trading hour — to see if traders want out of their trades and stocks going into the weekend. If they do, we probably have follow through selling next week.

These Kinds Of Selloffs Present Buying Opportunities

If you have any cash on the sidelines, or “dry powder,” now is the time to consider putting some of that cash to work. These kinds of selloffs present great opportunities to buy stocks “on sale” as usually the “baby gets thrown out with the bathwater,” and everything gets taken down — even the good companies. You don’t want to buy all in at once tomorrow — because, we simply don’t know where the bottom is right now. Leveraging or dollar cost averaging in on the good companies is the strategy I am following. To that end, I added to FaceBook (FB), Sarepta Theraputics (SRPT) and NPS Pharma (NPSP). I also started a position in Arrowhead Research Corp. (ARWR); and may get back into a company/stock I previously owned earlier this year — Halozyme Theraputics (HAZO) which received notice today (Thursday) that the Blood Products Committee of the FDA voted 15-1 in favor of HyQvia, which it is working in cooperation with Baxter for the treatment of primary immunodeficiency. The drug is already approved in Europe and is used to treat adults with myeloma and leukemia.

Watch the market reaction/futures at 0830 tomorrow morning (Friday, August 1) to see how the number is received on the street. All for now. V/R, RCP

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