Market Anticipates Good News of a Lousy Jobs Report

The market looked vulnerable early on Thursday as the Magnificent Seven MAGS covered up some underlying weakness to start the day, but the bears were unable to take advantage of the situation. After a short period of selling, there was a steady uptrend the rest of the day and an acceleration to the highs in the final hour of trading. The Russell 2000 small-cap index went from red to a gain of 1.25% and breadth was solidly positive.

There wasn’t any surprising economic news, but bonds were strong as interest rates fell. There is a near certainty that the Fed will cut interest rates in two weeks, but the market seems to be anticipating a poor August jobs report on Friday that will add to speculation of even more rate cuts at subsequent meetings.

There is speculation that there will be a very large downward revision in the jobs numbers, but that simply makes it easier for the Fed to give President Trump the rate cut that he wants. There is likely to be more talk about the flaws in the surveys done by the Department of Labor but the one thing that there is agreement on is that there is some weakness in jobs and that gives the Fed cover to overlook tariff-related inflation.

The jobs news is going to be a very interesting catalyst on Friday. The indices are at all-time highs, and a dovish Fed is already well anticipated. At what point is bad news about jobs just plain bad? Is the market counting on a greater degree of Fed dovishness beyond where it is now?

One thing is for sure: the anticipatory bears are helping to fuel this uptrend. They keep looking for a top that doesn’t occur, and that keeps bringing in buyers who are feeling some FOMO.

Have a good evening. I’ll see you tomorrow.

At the time of publication, DePorre had no positions in any securities mentioned.