J.D. DURKIN : Good Friday morning, subscribers, joining me today is AAP team member Steven Sarge Guilfoyle. Sarge, of course, a floor trader at the New York Stock Exchange. For over 30 years, he served as chief economist at Stewart Franklin Co, currently runs his own trading operation. You might also know him from the Street Stocks Under $10 portfolio or his Daily Management Recon column on Real Money. Sarge, good morning. Thanks for taking the time to join us.

STEPHEN GUILFOYLE: Good morning. I'm glad to be here.

J.D. DURKIN : It is great to have you here. Now, before we get started, just a quick reminder to all of you watching at home that Sarge's perspective on some of his answers here, they may be different from Chris Versace's. You may have noticed, you caught our Twitter spaces on Monday, this is all about giving you additional insight along with Chris's Daily Portfolio Management.

Check, of course, your alerts throughout the day for Chris's latest thoughts on the jobs report-- was it ever a jobs report-- and all of yesterday's earnings as well. No shortage of things to talk about. With that, I cannot think of a better place to start then the top news of the morning, Sarge. The US economy adding 517,000, 517,000 nonfarm payrolls for last month, according to BLS. What's your initial read here, Sarge?

STEPHEN GUILFOYLE: I just can't believe it. I mean, it's fantastic. I want to root for the United States, OK. I want to root for the United States economy for the average American. So I'm not going to complain. It's just, given the BLS performance from last year when it was so wildly inaccurate during the second quarter, and then you see numbers like this that were so out-of-whack with every private economists and even public economists, they're projections, it just makes you wonder.

I mean, 517,000 farm payrolls, that's incredible. But if you go over to the household survey, it's 894,000 additional adds. So after ADP told us on Wednesday that this economy only gained 106,000 private positions, now the BLS is telling us it's either 517,000 or a whopping 894,000.

I guess either way you slice it, the BLS number is outstanding. But then again, ADP, two days ago, their chief economist warned us that things were slowing down. So who do you listen to?

J.D. DURKIN : Well, I mean, oftentimes, we do see that separation between the ADP number and the number we get from BLS a few days later. So I wonder if you're willing to speak to me about that. But additionally, Sarge, is there anything outside of that headline number you think that's not being paid close enough attention to. It takes a while for the dust to settle before we could actually look at labor force participation, wages, et cetera. But what do you think maybe we should be talking a little bit more about as we continue to digest these numbers?

STEPHEN GUILFOYLE: The really interesting thing is the weekly hours worked. That popped from 34.3 hours to 34.7. I mean, that shows a dramatic increase in demand for labor, which will turn some part-timers into full-timers. And it will create new positions if it's real.

What I didn't like in this report, which is stunning, I mean, if you go over to the Table A, you see that the unemployment rate-- while the unemployment rate went down to 3.4% overall, the unemployment rate went higher for high school graduates and for college graduates. The only group that showed an improvement in their unemployment rate was those with less than a high school diploma. And it was a dramatic improvement.

So it makes you think, maybe the quality of the job created is trending towards the lower end of the educational demographic. I don't know what to make of that or this is even accurate because so much of the other stuff is so wild. But I think that is interesting that a higher percentage of high school grads and even college grads are unemployed this month than were last month. That can't be ignored.

J.D. DURKIN : It certainly can't. And that's a great perspective. And thank you for that. Now, we are using the word disinflation a lot this week, in part, because that's the word that Chairman Powell used, I believe 13 different times 2 days ago. This, of course, after the FOMC raising interest rates as we expected by 25 basis points. Sarge, over on Real Money, you likened this decision to a temporary truce as Powell took more of a middle ground in his press conference a few days ago.

Now that we've had a few days to digest, what do you think is next for the Central Bank? Where do they go from here?

STEPHEN GUILFOYLE: Well, I think that Chair Powell is trying to lead the group into a more pragmatic stance than they have been of late. We know a lot of them have been hardcore hawks now for over a year, which traditionally, we had seen them almost the entire group, except for maybe Mester and George, as dovish. So I think he's trying to soften their stance because as inflation is slowing, we know that January, the CPI on a month-over-month basis is going to pop a little bit.

So this month might be a little bit of an aberration. But on a year-over-year basis, inflation is slowing. We think or we thought, until we got today's jobs numbers, that we were probably heading into a recession late first quarter, early second quarter. This either pushes that back, or if these numbers are good, reinforces the soft-landing scenario.

So maybe Chair Powell is just trying to get us to a place where we're supposed to be, to a normalized economy that has positive rates, positive real rates, and can sustain something close to 2% annual growth in economic activity. I don't think he knows for sure, because I don't know for sure. A lot of economists I talked to don't know for sure.

He was wrong last year when he saw inflation as transitory. I was wrong last year because I saw inflation as transitory. Or maybe that was a year and a half ago or so. So I think he's basically admitting that we're at a place where maybe we have to go a little bit further on rates. I see that the Fed funds futures took the terminal rate up to about 5.15 today. It had been at 4.9. So that's moving a little bit higher.

I think he's trying to be flexible here. I think he thinks they've almost done enough. But he's leaving open a lot of room because he doesn't know. And maybe he didn't see these numbers coming today. Maybe this surprises them, which, you would think it would cause a little bit of a panic or a little bit of I-told-you-so to the hawks on the committee right now.

But you now what? Look at are US equities this morning. S&P 500 is down 32 points as we speak. The Dow is down 86 points. The market's not reacting with anger today. The market is reacting as if this is a good economy, a good report, which would be good for the economy. And rates are almost normalized. I think that's how you have to look at it.

J.D. DURKIN : Yeah, the S&P currently had 4,148. Now Sarge, you're a man who wears many hats. I wonder, do you look at the Fed differently when approaching it like a trader or when you're thinking about things more like an economist?

STEPHEN GUILFOYLE: Oh, of course. As an economist in this role, when I write my Market Recon morning note, I basically try to write what I would do in their place if I were sitting at the FOMC, if I were the Fed Chair, because I know past Fed committees have thrown my notes around with many others. Now, I'm not one of a few. I'm one of many.

But but they look at they look at the input from elsewhere. And so I try to add my input, just in case somebody there notices. I don't know that anybody currently at this committee reads my stuff. But I try to put my thoughts out there, just in case it gets to them somehow, even if that hurts me as a trader or an investor.

But as a trader or an investor, I have to completely divorce myself to what I think as an economist because I'm trying to make money. At the end of the day, I only provide for my family if I can turn a buck. So I have to invest. And I have to trade.

But as an economist, I have to have an opinion. And I have to express it publicly at times. And so I try to make sure those two things, there's almost a Chinese firewall between the two.

J.D. DURKIN : Let's take a zoom out to the broader market if we can here, Sarge. now that we've closed out the first month officially of trading in 2023, what surprised you most, especially given these big rallies we've seen up until now? And more importantly or just as importantly, what didn't surprise you?

STEPHEN GUILFOYLE: I've been surprised by the strength in the equity rally and to strengthen the debt security rally, to be honest with you. I expected from the middle of January on to see something of a sell off. It never came. I have been at higher levels of cash since early January in preparation of that. Fortunately, cash now pays something. And fortunately, I am still in that long. So it's not like I'm getting hurt.

Stocks like AMD are among my largest holdings. And they've had a great month. So I'm not hurting. But I am surprised at how strong this equity market rally has been, how strong debt securities have been.

I'm also surprised that with this strength, we have not seen any kind of retracement of the inversion of the yield curve, of the 210 or the three month 10. So that is one of the main things that really has me acting a little bit more cautious here, still, even now, even after we've had some confirmation on the charts of a sustained rally going forward because I will be further surprised if those inversions do not end up putting us into a state of economic contraction, if not within two months, maybe five months.

J.D. DURKIN : Sarge, how are you feeling about the month of February? Are there any potential catalysts, I wonder, things that you're focused on that maybe keep you up at night?

STEPHEN GUILFOYLE: Well, nothing really to feel up at night anymore. I'm too old for that. But February is historically a negative month for the S&P 500. It's, I think, one of only two. Over the past 25 years, I think the average February has given up maybe a little more than 0.4%. So it's not it's not a terrible month. But it is a month where markets usually step back from the annual January effect, which really happened this year.

So I would be just stunned if we get through February as wonderfully as we got through January. There is going to have to be a hiccup. There are no Fed meetings, so we don't have to worry about that. We do have CPI coming out. Without looking at the data at the date, I think it might be around Valentine's Day.

CPI is going to be a big deal this month because I do believe on a month-over-month basis, we will show an increase, both at the core and at the headline, or at least that's what the Cleveland Fed is telling me. So there's going to be a little bit of a pop there. You get the CPI pop on top of these strong jobs numbers, I think could probably see some profit taking within a week to a week and a half at the most.

J.D. DURKIN : Well, you nail the calendar, by the way, Sarge. CPI data scheduled for release on February 14 at 8:30 AM, so very well-done there. I do want to turn now and talk earnings with you quickly before we wrap up. In our Twitter Spaces with Chris Versace, you said, Sarge, that when looking at big tech as a long-term investor, you actually see room for future growth in the space. After last night's disappointing results from Apple, Amazon, and Alphabet, disappointing either on missed estimates or forecast, one reason or another, not a great picture after hours for those three names. But I wonder, has your outlook for tech changed since the close of the bell yesterday?

STEPHEN GUILFOYLE: Since the close of the bell yesterday, I think, my opinion that Apple is the prize crown of those three names. I think that's been reinforced. Apple's problem was as much one of demand as anything else where the other two do have really profound issues within their business models.

Google is under pressure from the ad side, from YouTube. Amazon, although it's a great company, without that rapid growth that they were achieving all along in AWS, that was their margin driver. Now they're going to have to run a business. It's a little tough to show growing earnings. They might get some minor growth in revenues, but growing earnings are going to be tough for Amazon from here.

Those two names might have to evolve into cash-flow type names that provide a dividend, which they have never done or at least I don't remember them ever doing. So they might have to evolve their model. Apple, on the other hand, I think Apple-- Cook's being smart. He's moving a lot of the operations into India. He's diversifying that. It took him a while, but he's getting it done.

Services, still a new record, installed base, a new record. There are things to like within the Apple report. So I'm not saying Apple isn't expensive because it is at this valuation. But I did hang on to it. I shorted Google last night going into that earnings report because I did not trust those numbers. And I didn't see the windfall I was hoping for on that short, but it did turn a profit.

But Apple, I stayed long throughout. And I am long. Where's Apple right now? It's actually up $1 and change right now. So I don't love Apple. It's not one of my favorite names. But I think Apple, if you're going to be long, and run a net long portfolio, yeah, you probably have to have some Apple in it.

As for tech, the larger picture, I think high-end semiconductors is where I want to be right now. That's why I'm in Nvidia. That's why I'm in AMD. Those, to me, are the elite, the creme de la creme of the semiconductor space right now. The rest of the places, space is dangerous. So I don't think want to be everywhere. Memory is a disaster for now. But I'm never ever going to bet against Lisa Su or Jensen Huang.

J.D. DURKIN : Real quick follow-up on Apple, you previously mentioned some balance-sheet concerns. Are those concerns still there?

STEPHEN GUILFOYLE: Yeah, it's not like they can't run their balance sheet. As of this quarter, just reported they have a current ratio about 0.94. I like to see a full 1.0. They have a quick ratio of 0.88 when you sans the inventory. So that's pretty much OK. I've noticed that while they have long-term debt of $111 billion, or as short term and long-term. But most of it's long-term, $111 billion.

The net cash balance is about 50 something billion. Between actual cash and short-term marketable securities, they have about $114 billion worth of long-term marketable securities on their balance sheet that they don't count as current assets. So I guess there must be in more illiquid type securities or something like that.

If more of those were in the current column, I would feel a lot better about this balance sheet. But it's not like they can't meet their obligations. It's not like they can't pay their bills. It's not like they can't buy back stock and pay their shareholders. I would just like to see this balance sheet restructured a little differently.

STEPHEN GUILFOYLE: Sarge, as you know, AAP also owns Ford, a name struggling a bit this morning after CEO Jim Farley said that the automaker left $2 billion in profits on the table. How would you be thinking about that report as a long-term investor like the majority of our members are?

J.D. DURKIN : Yeah, I like Ford. I'm not in Ford. I have been in Ford in the past. I pretty much got out of it at the right time this time around and missed the downswing. But I more so than the other traditional car makers, automakers, I like Ford because I like their CEO. I think Farley is an enthusiastic guy who loves the business. You don't see that everywhere.

You might see smart guys, smart gals. But do they love the business? This guy is a car enthusiast. And I believe he's the right guy for that job. It's going to be tough. They're going to have to lower prices now. It's going to squeeze margins. They have to get labor costs under control, all right?

The traditional automakers are ladled with higher overhead as far as payroll goes than are firms like Tesla and some of the other automakers that maybe are headquartered elsewhere. So that's something that he has to do. And he's got to work with the union on that.

I do believe it can be a long-term investment. But I think your target price has to be a modest-- I think Chris's target is 17. 17 is a fine target for that name. I don't think you're shooting for a double or triple in Ford. I think you're looking for an incremental gain.

STEPHEN GUILFOYLE: All right, Sarge. I'm very appreciative that you're able to take all this time, walk us through, help us all get smarter together on all these topics, earnings, Fed, and everything else in between. Sarge, thanks a lot.

STEPHEN GUILFOYLE: Pleasure's mine.

J.D. DURKIN : All right. Enjoy your weekend. And for those of you members watching at home, Chris Versace will be back on Monday to prepare you for the week ahead, sitting down with TheStreet's Katherine Ross. Thanks for watching and have a great weekend. We'll see you then.