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We had quite a swingy day on Wednesday after the Fed meeting announcement. The key takeaway was that Fed Chairman Powell tempered investor’s fears that the Fed might be considering a rate hike after 3-straight months of higher-than-expected inflation data. Powell said “it’s unlikely” the central bank’s next move will be a rate hike, but it still requires greater confidence that the inflation rate is falling to its 2% target before a rate cut is appropriate.
I was never in the camp that the Fed was seriously considering a rate hike, but apparently a fair number of investors and market watchers are. The bottom line is that the Fed remains in wait mode while it monitors incoming data, and the market could use some good news on that front.
That brings us to Friday’s jobs report for April. Consensus expectations are for a gain of 243,000 non-farm payrolls, compared to a surprisingly strong gain of 303,000 the prior month. The unemployment rate is expected to remain at 3.8%. With inflation worries running front-and-center, the market is likely to be keenly focused on the gain in average hourly earnings, which is expected to be 4.0%, versus last month’s 4.1%.
If you recall, on Tuesday we got a higher-than-expected reading on the first quarter Employment Cost Index (ECI), and the S&P 500 sold-off 1.5% and the Nasdaq 2% on the news. This market could be quite vulnerable if we get a materially hot wage gain/inflation number on Friday.
Technically speaking, the major indexes remain in a short-term downtrend, below their 50 dma-s, and the S&P 500 remains in a bear flag — making it extra-vulnerable to bad news (from a technical perspective).
On the positive side, breadth was quite good today as the S&P 500 rallied 0.9% and the tech-heavy Nasdaq rallied 1.5%. Advancing stocks led decliners by 3.5 to 1 on the NYSE, and nearly 2.5 to 1 on the Nasdaq.
As I’ve previously commented, this market has seen good breadth on any day that the 10-year Treasury yield is negative, and vice-versa. Today, the market got a boost from another solid decline in the 10-year yield. I have to admit, I’ve been surprised to see this sizeable drop in the yield the last 2 days, given the consistently hot inflation data we’ve been seeing and still-large Treasury debt issuances to fund the large budget deficit. Might the bond market be sniffing out some coming weaker economic data?
Going into tomorrow, the market got some good news when Apple (AAPL) reported earnings after-the-close and exceeded expectations on both revenue and EPS. The company also guided up estimates for next quarter and increased its dividend.
Apple traded up 6% in after-hours trading, taking it to the $183.50 area, which is well-above key price resistance at the $178.70 area and above its 200 dma. It would definitely be constructive for the market if the mega-cap can hold most of those gains in regular trading tomorrow and break out into a technical uptrend. Apple has the second largest market-cap of any company, after Microsoft (MSFT), so it would certainly help out the market-cap weighted indexes if Apple’s stock started trending up.
Of course, a materially higher-than-expected wage gain reading in tomorrow’s jobs report would send Treasury yields higher, and could be a big headwind for any broad market rally attempt.
Should we get bond & stock market friendly jobs report tomorrow (not too hot and not too cold), the overhead resistance level to watch is Monday’s highs — which is 17,820 on the tech-heavy mega-cap heavy Nasdaq 100, and 5123 on the S&P 500.
For the S&P 500 (see the chart above in the newsletter), the index’s 50 dma is just 6 points above Monday’s high of 5123, making that resistance level all the more important.
In short, the market is in a pivotable spot as it goes into tomorrow’s jobs report, and it wants a number that is not too hot and not too cold, with the wage gain reading being a very important variable.
That’s it for now, I will soon be sending out an updated focus watchlist after I’ve had some further time for review. And as always, I’ll be posting frequent market commentary on WMI’s private Twitter (X) page.
I appreciate well written commentary and analysis. Keeps me honest.
Nice and thorough. Well done!