Market Plays the Good Jobs, Bad Jobs Game
Technical support has been holding, but downward pressure has been building as negative news flow puts pressure on market optimists.
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The market has been dealing with a steady diet of negative headlines. The main issue is the situation in the Middle East, which continues to look extremely dangerous and is pushing oil higher. In addition, there is concern about a rebound in inflation that may make the Fed less dovish. Interest rates have been ticking higher, and bonds are breaking some key support.
The dockworker’s strike has been settled, which removes one potential economic danger, but how fast is the economy slowing? The market is still embracing the likelihood of a soft economic landing, but the jobs report that is due Friday morning will have an impact on that view and may shift how aggressively the Fed cuts rates.
While the market has been doing a good job of bouncing back from bouts of selling, the downside pressure has been building, and dip-buyers are looking a bit tired. The only thing helping right now is the belief in the soft-landing economic scenario, but the macro news flow is putting pressure on the optimists.
The jobs report Friday will be particularly interesting and have an impact on the economic view. The primary question is whether a weak jobs report is bad because it indicates that the market is slowing faster than hoped or is it good because it is anti-inflationary and gives the Fed more room to make interest rate cuts. The flip side is whether a strong report is good because it indicates that a soft landing is more likely or is it bad because it indicates a rebound in inflationary pressures.
We won’t know the answers to those questions until we see the data and how the market reacts. The market has already been acting poorly, and there is a greater likelihood of a negative spin than a positive one.
Technically, the market has been holding up quite well, but breadth was quite poor on Thursday, and there is weakening under the surface. The dip buyers have been persistent but looked weaker on Thursday.
A deeper pullback in front of earnings season would not be a bad thing. It would present a better technical setup and lower expectations. Still, the economic narrative will continue to be the main market driver.
We have a mixed open early on Friday as we await jobs news at 8.30 a.m. ET.
At the time of publication, Rev Shark had no positions in any securities mentioned.
