Stocks continue their volatile journey, picking up some decent gains on Friday after another morning sell off triggered by the initial reaction to the jobs report. Compared to recent losses, the gains weren't overly impressive, 32 S&P 500 points, but that was 104 points off the lows of the day. And the market peaked at about 3PM ET, so there wasn't a big rush to buy into the close. Yields were up pushing bonds and the F-fund lower.
The February jobs report came in slightly lighter than expected. By the way, I had the estimate posted last week as +145,000 jobs, so I initially thought it was a beat. I went back to briefing.com where I get that data, and it was actually the private payrolls that was 145K, and the estimates were actually 159,000, so it was a slight miss. The unemployment rate also ticked up a tenth of a percent.
It wasn't great but not the disaster that some where expecting, and it also helps keep the Fed on rate cut alert. The economic strength has become a concern because of the tariffs, but that means the Fed may cut rates sooner than later, but no one really knows the impact of the tariffs or even the DOGE cuts yet.
Remember when the Fed and Treasury Secretary were saying that inflation was transitory back in 2021? And we all thought that the inverted yield curve of 2022 was going to cause a recession? None of that was correct.
We did get a bear market in 2022 anyway, so we do have to be cognizant that stocks could correct further or become a bear market without seeing a recession. That's what markets do - breathe. We can speculate but again, no one really knows for sure what the impact of tariffs and the DOGE cuts will be on the economy.
We only have to go back two years to see several similar pullbacks to the one we're in currently. Those red lines below represent an equal percentage decline off a high as we've seen in this current pullback. And these were during the bull market - not the 2022 bear market, so right now this is normal action, but of course it may or may not get worse before getting better.
Let's go to the current action and see what the chart is telling us.
The jobs report caused an initial negative reaction, pushing the S&P 500 down below the emotional 200-day EMA. Closing back above it was a good sign as that moving average is a triggering pivot point for many investors and traders. A few closes below it, and the money managers start getting more defensive. Holding above it can trigger the underinvested to start buying again. It's too early for the bulls to claim victory with the reversal and close back above it, but that was a good stand by the bulls in that critical area.
Should we be encouraged, or should rallies now be sold? The futures opened lower on Sunday evening so there will likely be another test on Monday morning, but taking a step back from the day to day volatility, I've been talking about the monetary setup and while monetary policy doesn't dictate the day to day ups and downs of the market, there is a pretty good correlation between monetary policy and market trends. This is not exciting stuff so let's just touch on what's going on.
Fed liquidity is on the rise, and the downward trend of 2024 is now an upward trend. This is good.
Source: https://fred.stlouisfed.org/series/WRESBAL
The M2 Money Supply growth, in this case the global supply, had been lower than the growth of inflation, that is until last fall when it started to move above inflation growth. The second chart zooms in on the crossover...
... which started in August of last year, and just before the election, it hasn't looked back.
Here is the S&P 500's reaction to that crossover.
The market has been shaky in recent months, but not because of the money supply or interest rates, so this leads me to believe that this pullback is just normal volatility caused by the headlines, but financial conditions are still ripe for a positive trending stock market to resume, after this little shakeout.
Yields were up on Friday despite the weaker than expected jobs report, which tells me that the bond market was not concerned with the data. Yields are still trending lower so either the economy is losing some steam or inflation is less of a factor, or both. The chart may just be doing some backing and filling of the open gap in red.
The dollar has been getting slammed recently, and that is another clue that this sell off in stocks is not too much to be worried about. If investors were seriously worried about the stock market, they'd be moving to cash, but they're not. Gold was also coming down since mid-February and bonds, while they have rallied strong this year, are down so far this month, so there's not lot of fleeing to safety.
Worried about a government shutdown this week and what it might do to the stock market?
Again, the futures opened sharply lower on Sunday evening, but the environment is getting ripe for a relief rally.
Admin note: If I remember correctly, the TSP does not observe daylight savings so, depending on which state you live in, the share prices may be getting updated an hour later then they have been this winter -- from about 8 PM ET to 9 PM ET. I hate that, and why they takes so long to update after the market closes (5 hours in this case) doesn't seem right.
DWCPF (S-fund) was also able erase the morning losses on Friday to close with a modest gain. This has been trading below its 200-day EMA for several days, but the lows on Friday did close an open gap from way back in September. Was that the target? Maybe, but that gap was rather small.
ACWX (the I-fund tracking index) continues to lead the TSP funds with the help of the dollar falling almost everyday recently. The trend is up, the pullback support level near 55 held, and that's all good, but a possible double top is looming.
BND (F-fund) pulled back and the breakout area did not hold as support last week. Opens gaps are all over the chart so there is an excuse to pull back, but if the economy is weakening, yields would stay stable or move lower, which should help this chart stay buoyant.
Thanks so much for reading! We'll see you back here tomorrow.
Tom Crowley
Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php
Questions, comments, or issues with today's commentary? We can discuss it in the Forum.
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Posted daily at www.tsptalk.com/comments.php
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We may use additional methods and strategies to determine fund positions.
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The February jobs report came in slightly lighter than expected. By the way, I had the estimate posted last week as +145,000 jobs, so I initially thought it was a beat. I went back to briefing.com where I get that data, and it was actually the private payrolls that was 145K, and the estimates were actually 159,000, so it was a slight miss. The unemployment rate also ticked up a tenth of a percent.
It wasn't great but not the disaster that some where expecting, and it also helps keep the Fed on rate cut alert. The economic strength has become a concern because of the tariffs, but that means the Fed may cut rates sooner than later, but no one really knows the impact of the tariffs or even the DOGE cuts yet.
Remember when the Fed and Treasury Secretary were saying that inflation was transitory back in 2021? And we all thought that the inverted yield curve of 2022 was going to cause a recession? None of that was correct.
We did get a bear market in 2022 anyway, so we do have to be cognizant that stocks could correct further or become a bear market without seeing a recession. That's what markets do - breathe. We can speculate but again, no one really knows for sure what the impact of tariffs and the DOGE cuts will be on the economy.
We only have to go back two years to see several similar pullbacks to the one we're in currently. Those red lines below represent an equal percentage decline off a high as we've seen in this current pullback. And these were during the bull market - not the 2022 bear market, so right now this is normal action, but of course it may or may not get worse before getting better.
Let's go to the current action and see what the chart is telling us.
The jobs report caused an initial negative reaction, pushing the S&P 500 down below the emotional 200-day EMA. Closing back above it was a good sign as that moving average is a triggering pivot point for many investors and traders. A few closes below it, and the money managers start getting more defensive. Holding above it can trigger the underinvested to start buying again. It's too early for the bulls to claim victory with the reversal and close back above it, but that was a good stand by the bulls in that critical area.
Should we be encouraged, or should rallies now be sold? The futures opened lower on Sunday evening so there will likely be another test on Monday morning, but taking a step back from the day to day volatility, I've been talking about the monetary setup and while monetary policy doesn't dictate the day to day ups and downs of the market, there is a pretty good correlation between monetary policy and market trends. This is not exciting stuff so let's just touch on what's going on.
Fed liquidity is on the rise, and the downward trend of 2024 is now an upward trend. This is good.
Source: https://fred.stlouisfed.org/series/WRESBAL
The M2 Money Supply growth, in this case the global supply, had been lower than the growth of inflation, that is until last fall when it started to move above inflation growth. The second chart zooms in on the crossover...
... which started in August of last year, and just before the election, it hasn't looked back.
Here is the S&P 500's reaction to that crossover.
The market has been shaky in recent months, but not because of the money supply or interest rates, so this leads me to believe that this pullback is just normal volatility caused by the headlines, but financial conditions are still ripe for a positive trending stock market to resume, after this little shakeout.
Yields were up on Friday despite the weaker than expected jobs report, which tells me that the bond market was not concerned with the data. Yields are still trending lower so either the economy is losing some steam or inflation is less of a factor, or both. The chart may just be doing some backing and filling of the open gap in red.
The dollar has been getting slammed recently, and that is another clue that this sell off in stocks is not too much to be worried about. If investors were seriously worried about the stock market, they'd be moving to cash, but they're not. Gold was also coming down since mid-February and bonds, while they have rallied strong this year, are down so far this month, so there's not lot of fleeing to safety.
Worried about a government shutdown this week and what it might do to the stock market?
Again, the futures opened sharply lower on Sunday evening, but the environment is getting ripe for a relief rally.
Admin note: If I remember correctly, the TSP does not observe daylight savings so, depending on which state you live in, the share prices may be getting updated an hour later then they have been this winter -- from about 8 PM ET to 9 PM ET. I hate that, and why they takes so long to update after the market closes (5 hours in this case) doesn't seem right.
DWCPF (S-fund) was also able erase the morning losses on Friday to close with a modest gain. This has been trading below its 200-day EMA for several days, but the lows on Friday did close an open gap from way back in September. Was that the target? Maybe, but that gap was rather small.
ACWX (the I-fund tracking index) continues to lead the TSP funds with the help of the dollar falling almost everyday recently. The trend is up, the pullback support level near 55 held, and that's all good, but a possible double top is looming.
BND (F-fund) pulled back and the breakout area did not hold as support last week. Opens gaps are all over the chart so there is an excuse to pull back, but if the economy is weakening, yields would stay stable or move lower, which should help this chart stay buoyant.
Thanks so much for reading! We'll see you back here tomorrow.
Tom Crowley
Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php
Questions, comments, or issues with today's commentary? We can discuss it in the Forum.
Daily Market Commentary Archives
For more info our other premium services, please go here... www.tsptalk.com/premiums.php
To get weekly or daily notifications when we post new commentary, sign up HERE.
Posted daily at www.tsptalk.com/comments.php
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We may use additional methods and strategies to determine fund positions.
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