SUMMARY:
- Market jumps on strong jobs report, has second thoughts, closes out week quietly.
- Jobs data surges past expectations, puts emphasis back on what Fed will do.
- Tax revenues surge, indicating the economy is stronger than most think
- Pessimism about ability to continue move higher rises, improving odds rally will continue.
- Were jobs too strong for the Fed? Facing the same old struggle ahead, but near term market still set to rebound.
More jobs? Great news! Well, maybe not.
There is tension in the market that is distorting what is good news and what is bad news. Typically prosperity is celebrated by Americans and the market. Problem is, this is one of those atypical times when the Fed is actively raising rates to take on inflation and fight prosperity. The market wants it to end as soon as possible because the Fed acts as a governor, an inhibitor on the economy and thus the market.
Indeed, it is often the catalyst of serious economic problems. In eight of the last ten rate hiking campaigns the economy subsequently tanked into recession. The Fed's most recent triumph was the 2000 crash, yet many still bow to the Federal Reserve building when they walk by with some Manson-like belief that Greenspan and company actually saved us from disaster. With trillions of dollars in lost retirement savings as a result, it is fairly incomprehensible that some believe the outcome was a good thing. If Greenspan wants another job after the Fed he could always work as a weatherman. Being right 20% of the time would make him a giant in that field.
Thus a surge in non-farm payrolls and upward revisions to February and March by a net 100K had little impact in the end. Sure futures jumped on the news, but they, like the market later, backed off after the initial move, an indication of some of the undercurrents about just what this news meant. The market rallied early, but the initial surge in the first 15 minutes was the zenith. It was all downhill after that.
An afternoon rebound helped bring the indices back to flat to positive on the close. Volume, after running higher early on the jobs news, backed off and closed significantly lower. Breadth was flattish. The indices held above support and below resistance. Oil was up but it too weakened in the afternoon. It was a very slow session where the big money basically got squared up for the weekend.
To us that left the market in very god shape. A nice follow through session Wednesday confirmed the strong move higher on SP500 the prior Friday. The light trade and modest losses to end the week did not do anything to undermine that move. Indeed, it worked to set up the next move higher.
What remains, however, is the Fed, as well as some pesky oil prices that are not giving up $50 as easily as we would like. The stronger economic data of late appears to indicate any March or Q1 slowdown is fading. That gives the Fed all of the ammunition it needs to continue its rate hiking. Bonds sold off on the news and then came back some, but they were also wrestling with what the Fed would do with the more recent stronger data, pricing back in a bit more rate hiking, but not enough to alter the outlook of two more 25BP hikes. The question the market will still wrestle with is how far the Fed will go and whether stocks can go ahead and price in a Fed that is almost done. |
