MONDAY:
Maybe the jobs number was too strong. 200K would have been good, but 275K? With the Fed not needing too many reasons to keep raising rates, the jobs report did not give reasons not too. That along with oil returning back up over $52 intraday (closed at 50.96, +0.13) was enough to make investors take pause before the weekend.
Thus we will enter the new week with the same eternal questions for the current market: how far for the Fed and how high (or how fast a fall) for oil. The jobs report only managed to put some brakes on the idea the Fed was done after the GM downgrade to junk status. There is a big difference, however, between no more rate hikes and just two more rate hikes. No more rate hikes was a pipe dream of the overeager. Two more rate hikes puts the Fed Funds rate at 3.5%, on of the Fed's original targets (up to 4%), and in line with the futures contract. If that is all the Fed does, that is super for the market: no major hikes and the end very much in sight.
The market is starting to price in a nearer end to the rate hikes. The beauty of what is happening now is that the economy looks to be revving back up even with the rate hikes. Of course the hikes still have months to fully impact the economy, so the fact that the action is picking up does not mean it will continue to do so as more rate hikes fall out of the sky. In short, the market can handle a couple more rate hikes, maybe even four more. It has to have a sense, however, that the campaign is coming to its end.
We think this recent move is factoring in some economic improvement and a couple more rate hikes, maybe even three or four. That gives it some more upside here. The indices are at key resistance levels and will have to clear them, but the move thus far is showing few weaknesses. It can fold up the tent next week and tank once more, but at this stage it has done what it needs to do to rally further, and the action and sentiment certainly appear to support a continued move higher. We still don't believe this is the bottom for the year; it will need a test lower in July to August, but it could come sooner.
Given the action to this point, however, for now we are looking at leaders ready to continue their moves. After a couple of quiet consolidation sessions and maybe another one or two to start the week, they will be ready to resume their breakouts. The first test of a breakout is our favorite entry point, so we could be seeing some good moves mid-week. |
