The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Big surprise.
Nonfarm payrolls in December (+256k vs +165k est & +212k prior revised from +227k) were incredibly strong. Other parts of the labor picture showed strength as well, with the unemployment rate dropping to 4.1% from 4.2% prior and the underemployment rate dropping to 7.5% from 7.7% prior. S&P futures dropped 50 points instantly and Treasury yields climbed significantly. Fed rate cuts were priced out of the market and talk of potential Fed *hikes* swirled around, stoking fears in equities. The S&P opened down 43 points and fell to -68 when U Michigan data really knocked the market down. Current conditions were hot (77.9 vs 75.1 est & 75.1 prior). More importantly, inflation expectations came in very high:
The S&P fell 30 more points on that data release. The intraday low printed around noon, down 108 points. There was a 50 point bounce that rolled over in the late afternoon. Capital flow was slightly higher at 114%.
The narrative for the market changed today. The Fed is no longer perceived as being a friend to the equity market. Higher rates, perhaps much higher, are prompting valuation concerns and are planting thoughts of an end to, or at least a stall in, the bull market. From a technical standpoint, the situation has reversed again. The 200-day moving average is 5820 and that number is very relevant for the bears if the market drops significantly below it on Monday.
Here's our favorite chart. It still looks fine for the long term but anyone concerned about a bearish run, has valid signals which suggest downside.
The weekend will likely allow nerves to settle but the narrative needs to change. The narrative just became “the economy is too hot and inflation expectations may be jumping.”
That’s not a bullish story.
See you Monday, have a great weekend.
-Mike
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