The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
The narrative holds
S&P 500 futures traded up a little overnight and in the early hours. They implied about +40 on the index when nonfarm payrolls printed (+115k vs +65k est & +185k prior revised from +175k). Futures popped higher on the data. Yields came in on the data. The Dollar dropped on the data. Precious metals gained on the data. Crude didn’t move but also crude was about flat then and traded flat for the day. US/Iran news was quiet and the war-trade wasn’t in motion as a result. Despite overbought technicals, the S&P 500 gained after the open and remained bid throughout the day, trading around +55 points. Tech led the other sectors higher, by far. Healthcare and Utilities lagged.
The headline labor data, quietly predicted by ADP on Wednesday, was better than expected but not so large as to worry the market about an overheated economy. The market narrative is that the economy is doing well and that it is picking up steam but it’s not getting out of control. It’s essentially a Goldilocks economy story. Today’s labor data reinforced that. This is a far cry from late March when the narrative was that the oil shock could tip the economy into recession with high inflation.
What a far journey in perception the market has made. And the price of equities reflects it.
Equity investors are very optimistic now. It’s starting to get a little giddy. If the market keeps climbing early next week, we’ll be entering euphoria and delusion territory. The sentimental pendulum is very far from neutral. Is it maxed out right now or does it have further to swing next week?
I don’t know. We don’t have powerful data releasing on Monday that might catalyze a push higher. We do have CPI (3.7% est vs 3.3% prior) on Tuesday and PPI (4.8% est vs 4.0% prior) on Wednesday. If *those* inflation releases show cooler-that-expected results, hold on to your hats. That’s the kind of data catalyst that could blow the roof off of the market. A cool surprise is unlikely though.
There are no likely market-moving earnings announcements next week either. So on the earnings front, the existing narrative will get no material support.
An agreement between the US and Iran could certainly drive the market up again. Maybe if that occurs over the weekend, we’ll get continuation to the upside for stocks.
All in all, the US stock market is a powerhouse right now. Overbought technicals are flashing. Investor sentiment is rosy and improving. Economic signals are about as good as they could be, with the exception of inflation.
All those factors suggest that something has to give. And at *some* point in the future, the tape will retreat. But optimism and upside often surprise to the upside. And overbought conditions can melt away with some period of sideways trading. And the dip-buyers are out there and they will not let stocks drop too much randomly.
As counterintuitive as it may seem, this rally from late March may still have legs.
See you Monday, have a great weekend.
-Mike
Visdom Market Commentary
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