Stocks took another beating on Friday after a big miss in the jobs report, but really the futures were already down sharply overnight before the report was released, so Thursday's selling was going to resume anyway. The jobs report just put another possible nail in the coffin of the labor market which appears to be teetering. Stocks closed well off the lows of the day but the losses were still severe and it should stay volatile for a while, barring perhaps any Fed intervention. Bonds rallied sharply as yields and the dollar plummeted on the jobs data.
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I forgot to mention to you last week that I will be on vacation this week. Now the sell off makes more sense because it's uncanny how often the market volatility spikes during weeks when I am out of town and hoping for a quiet week in the market - and I rarely leave town for any length of time. I plan to make a brief update each day here, to keep myself informed in this environment. My email correspondence may be a little slow but I will attempt to check it a couple of times each day. My apologies in advance for any inconvenience.
The July jobs report was expected a gain of 175K to 185K jobs but as you probably saw, it fell well short of that number coming in a +114K. And, I sound like a broken record because they once again revised the prior jobs report (June) from +206K, down to +179K, which was basically the estimate at the time of the release.
And, for the record, here's what the jobs reports have been doing with revisions this year:
In the July jobs report reported in August, they revised the June report from 206K to 179K, or down 27K.
In the June jobs report reported in July, they revised the May jobs report down from 272K to 218K, down 54K.
In the May jobs report reported in June, they revised the April jobs report down 10K and the March gain down another 5K.
The April Jobs report reported in May, they revised the March gain down 12K to 315K, and February revised down another 34K to 236K.
In the March jobs report reported in April, they revised the February number down 5K.
In the February jobs report, January's report was revised down 124,000 (353,000 to 229,000) and December's was revised down 43,000 from 333,000 to 290,000.
And do you remember in March when this headline came out: Philadelphia Fed Admits US Payrolls Overstated By At Least 800,000 through December, so they overstated the numbers in 2023 as well. So consider that when analyzing the labor market.
Maybe the bigger surprise in the report for the stock market was the jump in the unemployment rate to 4.3%, a couple of ticks higher than the estimate. This is what triggered the concern as most economic slowdowns and recessions start with a jump in unemployment and that's now almost a full percent point above the 3.4% low we saw in 2023, and the highest reading since October of 2021.
To be real, the economy grew by 114,000 jobs in July, which was below estimates but that is still growing and not decreasing, and we are hearing that weather played a big role in the July jobs report so we'll see if July's number becomes a trend or if it was an anomaly. It's probably too early to say it's a recession, but the unemployment rate climbing almost 1% over the last year is a concern.
Remember when the stock market celebrated when the Yield on the 10-year Treasury went down, especially when the dollar was falling with it? Well, we're past that point. Again, did the weather influenced jobs report cause an overreaction?
The dollar has been whipped around with an interest rate hike in Japan on Wednesday, a rate cut from the Bank of England on Thursday, and then the jobs report's impact on Friday.
Also, let's not forget that the stock market is not the economy and the two don't always roll together. The stock market is more of a leading indicator that tries to anticipate what is coming, but GDP growth and a recession are actually rear-view mirror information that we only really know about after the the fact when the data comes in. By the time we hear it, it could have changed already. So we won't knew if a recession is coming for months, even if we're in one now. One jobs report doesn't mean a whole lot, but it was a warning and the stock market falling may be telling us something.
Now it's time to try to figure out what happens next; a surprise interest rate cut before the September meeting, maybe? They have now priced in a 75% chance of 0.50% rate cut in September instead of a 0.25% cut, so that's new.
Anyway, I was supposed to make this quick because I have to leave. I'll check in daily but the updates will be more brief this week. Bottom line, the charts need to improve quickly or this could get out of hand.
The S&P 500 (C-fund) fell sharply on Friday, after Thursday's negative outside reversal day. We talked a lot about those as we saw one in May that triggered a week long pullback. There was one in the middle of June that triggered the start of the left shoulder of that red head and shoulders pattern, and Thursday's was the peak of looks like a right shoulder, and of course the chart broke down from that H&S on Friday. It's looking for support at the 100-day EMA. At some point it could bounce back up to test the breakdown area near 5450, but that would be some tough resistance barring any major bullish catalyst.
DWCPF (S-fund) has a different look to it because it took a different road to get to its recent highs. It's back trading within that long consolidation area between 1980 and 2020. It successfully tested the 140-day EMA, something that also held back in April, and also in June. The open gap up to 2080 could be a snap back rally target but that's where the resistance would kick in.
The EFA (I-fund) has been getting whipped around by those moves in the dollar, magnifying the swings in the stock markets in general. It fell below the recent lows so, while this could give some nice short-term relief rallies, the chart looks broken.
BND (bonds / F-fund) keeps on keeping on with yields continuing to fall and the threat of a rate cut from the Fed. Bond prices go up when yields are coming down.
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.html
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 use additional methods and strategies to determine fund positions.
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I forgot to mention to you last week that I will be on vacation this week. Now the sell off makes more sense because it's uncanny how often the market volatility spikes during weeks when I am out of town and hoping for a quiet week in the market - and I rarely leave town for any length of time. I plan to make a brief update each day here, to keep myself informed in this environment. My email correspondence may be a little slow but I will attempt to check it a couple of times each day. My apologies in advance for any inconvenience.
The July jobs report was expected a gain of 175K to 185K jobs but as you probably saw, it fell well short of that number coming in a +114K. And, I sound like a broken record because they once again revised the prior jobs report (June) from +206K, down to +179K, which was basically the estimate at the time of the release.
And, for the record, here's what the jobs reports have been doing with revisions this year:
In the July jobs report reported in August, they revised the June report from 206K to 179K, or down 27K.
In the June jobs report reported in July, they revised the May jobs report down from 272K to 218K, down 54K.
In the May jobs report reported in June, they revised the April jobs report down 10K and the March gain down another 5K.
The April Jobs report reported in May, they revised the March gain down 12K to 315K, and February revised down another 34K to 236K.
In the March jobs report reported in April, they revised the February number down 5K.
In the February jobs report, January's report was revised down 124,000 (353,000 to 229,000) and December's was revised down 43,000 from 333,000 to 290,000.
And do you remember in March when this headline came out: Philadelphia Fed Admits US Payrolls Overstated By At Least 800,000 through December, so they overstated the numbers in 2023 as well. So consider that when analyzing the labor market.
Maybe the bigger surprise in the report for the stock market was the jump in the unemployment rate to 4.3%, a couple of ticks higher than the estimate. This is what triggered the concern as most economic slowdowns and recessions start with a jump in unemployment and that's now almost a full percent point above the 3.4% low we saw in 2023, and the highest reading since October of 2021.
To be real, the economy grew by 114,000 jobs in July, which was below estimates but that is still growing and not decreasing, and we are hearing that weather played a big role in the July jobs report so we'll see if July's number becomes a trend or if it was an anomaly. It's probably too early to say it's a recession, but the unemployment rate climbing almost 1% over the last year is a concern.
Remember when the stock market celebrated when the Yield on the 10-year Treasury went down, especially when the dollar was falling with it? Well, we're past that point. Again, did the weather influenced jobs report cause an overreaction?
The dollar has been whipped around with an interest rate hike in Japan on Wednesday, a rate cut from the Bank of England on Thursday, and then the jobs report's impact on Friday.
Also, let's not forget that the stock market is not the economy and the two don't always roll together. The stock market is more of a leading indicator that tries to anticipate what is coming, but GDP growth and a recession are actually rear-view mirror information that we only really know about after the the fact when the data comes in. By the time we hear it, it could have changed already. So we won't knew if a recession is coming for months, even if we're in one now. One jobs report doesn't mean a whole lot, but it was a warning and the stock market falling may be telling us something.
Now it's time to try to figure out what happens next; a surprise interest rate cut before the September meeting, maybe? They have now priced in a 75% chance of 0.50% rate cut in September instead of a 0.25% cut, so that's new.
Anyway, I was supposed to make this quick because I have to leave. I'll check in daily but the updates will be more brief this week. Bottom line, the charts need to improve quickly or this could get out of hand.
The S&P 500 (C-fund) fell sharply on Friday, after Thursday's negative outside reversal day. We talked a lot about those as we saw one in May that triggered a week long pullback. There was one in the middle of June that triggered the start of the left shoulder of that red head and shoulders pattern, and Thursday's was the peak of looks like a right shoulder, and of course the chart broke down from that H&S on Friday. It's looking for support at the 100-day EMA. At some point it could bounce back up to test the breakdown area near 5450, but that would be some tough resistance barring any major bullish catalyst.
DWCPF (S-fund) has a different look to it because it took a different road to get to its recent highs. It's back trading within that long consolidation area between 1980 and 2020. It successfully tested the 140-day EMA, something that also held back in April, and also in June. The open gap up to 2080 could be a snap back rally target but that's where the resistance would kick in.
The EFA (I-fund) has been getting whipped around by those moves in the dollar, magnifying the swings in the stock markets in general. It fell below the recent lows so, while this could give some nice short-term relief rallies, the chart looks broken.
BND (bonds / F-fund) keeps on keeping on with yields continuing to fall and the threat of a rate cut from the Fed. Bond prices go up when yields are coming down.
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.html
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 use additional methods and strategies to determine fund positions.
