What was expected to be almost a non-factor after the Fed's more dovish FOMC meeting this past week, the jobs report came out before the opening bell on Friday and it blew estimates out of the water. Of course this set off a couple of thoughts from investors, including elevating hopes that there may be less of a chance of a recession this year than most thought, but also concern that inflation may not be going away anytime soon as the Fed has been focusing on slowing down the labor market to control inflation.
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The Dow lost 128-points on Friday with losses of 1% or higher in many of the broader indices because of that fear of an overheated labor market - plus the earnings disappointments from Amazon and Google. Apple came into Friday also under some pressure after earnings, but turned it around to close up 2.4% on the day, so the indices could have done a lot worse if not for Apple.
In my last commentary I said that, because the Fed seems to have changed their hawkish tune, we may finally start to see strong economic data be good news, and weak data be bad news. Friday's jobs number proved me wrong, but it wasn't just strong data, it was outlandish data.
If money managers and investors saw this jobs data a good thing for the economy, we saw reactions like this:
“With 517,000 new jobs added in January 2023 and the unemployment rate at 3.4%, this is a blockbuster report demonstrating that the labor market is more like a bullet train,” Becky Frankiewicz, president and chief commercial officer of ManpowerGroup, said Friday.
On the other hand, some met the data was suspicion considering big tech companies have been laying off employees at an alarming rate in recent weeks, so we also saw articles like this from Bloomberg:
"Too Good to Be True’ Jobs Report Draws Skeptics on Data Quirks"
"For the establishment survey, the government’s updated seasonal factors may have impacted the headline payrolls figure. On an unadjusted basis, payrolls actually fell by 2.5 million last month."
Back in December we got this headline, and I mentioned it in one of our daily commentaries back then.
Philadelphia Fed suggests BLS overstated job growth in second-quarter by a million jobs
Video from CNBC: https://www.cnbc.com/video/2022/12/...owth-in-second-quarter-by-a-million-jobs.html
So that leads me to; how are we supposed to know how to trust or decipher any jobs data? We probably can't, so it's to the charts I go for clues, and as we saw throughout January, and to lesser extent the lows back in October, there has been a great improvement in the charts.
It is possible that we hare seeing a short-term peak, but unless we see a break in the recent trend, it may not be more than that - in other words, not a market top unless maybe we see the S&P 500 fall below the 3900-4000 area again.
The bond market and the dollar took the strong data seriously as yields popped higher, although the 10-year Treasury Yield only gained back what it lost in the prior three trading sessions, as well as remained in the right shoulder of its head and shoulders pattern.
The dollar did break above its recent trading channel, but we've seen these false breakouts before after other outlier data is released.
One thing that did get worse was the inverted 2-year / 10-year yield curve. After steepening through most of December, it is now heading south again and threatening to test the lows. Remember, this is one of the best indications of an upcoming recession that we have, although we've been hearing a lot of "it's different this time" excuses for a while. In their defense, it did originally invert back in April of 2022, and again in July, but we still haven't had an official recession. However, this is a leading indicator and it generally takes 6 to 24 months before a recession occurs after an inversion.
So, despite the mixed messages out there, the jobs data that may or may not be accurate, and the Fed who may have become less dovish after that jobs report, the charts still matter most because the story is baked into them.
There is something that some of you may not know, especially if you've only been paying attention to markets for the last 10 - 15 years. It's not normal for interest rates to be near 0% as we saw after the financial crisis and most of the time between late 2008 and into 2022, except for a period in there between 2016 and 2019 before COVID hit.
The stock market market has had the wind at its back for a long time with these low rates, and it just isn't normal. Interest rates and bond yields have been trending lower for decades, but that may have changed as you can see. It's no coincidence that the angle of incline for the stock market changed back in 2009. That's when interest rates hit 0%. Now the Fed has them back over 4% and the downtrend is broken, so the stock market may no longer act like it did from 2009 to 2021.
Buy and hold may still work, but the very low interest rates certainly benefited them more than it likely will in the coming years, so market timers, it may be your turn to shine - if you're on top of things.
The S&P 500 (C-fund) created an ugly negative reversal pattern on Friday. The indices opened lower but the bulls, who have had the momentum, fought back to erase much of the opening losses, but the rally faded again in the afternoon creating the negative reversal day. The low on Friday did successfully test the old resistance line of the ascending trading channel, so we'll have to see if that can continue to hold, if it gets back into the channel, or worst case - the channel breaks down if the selling gets much worse. For now we may have to give the bulls the benefit of the doubt because of their recent momentum, but it would not be a surprise based on the indicators I follow, to see the rally running out of steam at these levels.
The weekly chart shows that the long-term resistance line (blue) has been broken for the last two weeks. This is a bullish sign for sure, but even if that breakout holds, a retest of the breakout area is not unusual, so we'll have to keep an eye on pullbacks in the 4000 area to see if that old descending resistance line can hold it up as support now. Technically, last week's low did successfully test that line. The red circles represent reversals, both at peaks and bottoms, and we actually had reversals off the low and high last week.
DWCPF (S-fund) also created a negative reversal day although it was somewhat constructive as it filled in a small open gap from the day before. It is also sitting on the old rising trading channel near 1800 so early this week could be make or break for that breakout. A breakdown would still keep it in that trading channel, which wouldn't be a bad thing if the lower support line continues to hold. There's nothing overly bearish looking here except that it may look too extreme and in need of a pause.
The EFA (I-fund) has been lagging over the last week or so and the jobs report data spiked the dollar to add some additional pressure. It's still in an ascending channel so it's tough to get too bearish, but the negative reversal day off the the recent highs should get our attention as the January rally seems to have lost some steam here.
BND (bonds / F-fund) gapped lower as yields spiked on the very strong labor numbers. It did find support at the 200-day EMA and the 74.60 area has been holding for weeks. I don't see this as much of a threat to the F-fund because if the strong data causes the Fed to continue to raise rates, a recession becomes more likely and yields would likely fall in that case, and bond prices would rally. If the Fed stops raising rates yields could also continue to fall, so it seems like a win, win situation for bonds. If the chart happens to fall below 73, then from a technical standpoint it would change that story to a more bearish one.
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
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.
Thanks so much for reading. We'll see you back here tomorrow.
Tom Crowley
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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The Dow lost 128-points on Friday with losses of 1% or higher in many of the broader indices because of that fear of an overheated labor market - plus the earnings disappointments from Amazon and Google. Apple came into Friday also under some pressure after earnings, but turned it around to close up 2.4% on the day, so the indices could have done a lot worse if not for Apple.
In my last commentary I said that, because the Fed seems to have changed their hawkish tune, we may finally start to see strong economic data be good news, and weak data be bad news. Friday's jobs number proved me wrong, but it wasn't just strong data, it was outlandish data.
If money managers and investors saw this jobs data a good thing for the economy, we saw reactions like this:
“With 517,000 new jobs added in January 2023 and the unemployment rate at 3.4%, this is a blockbuster report demonstrating that the labor market is more like a bullet train,” Becky Frankiewicz, president and chief commercial officer of ManpowerGroup, said Friday.
On the other hand, some met the data was suspicion considering big tech companies have been laying off employees at an alarming rate in recent weeks, so we also saw articles like this from Bloomberg:
"Too Good to Be True’ Jobs Report Draws Skeptics on Data Quirks"
"For the establishment survey, the government’s updated seasonal factors may have impacted the headline payrolls figure. On an unadjusted basis, payrolls actually fell by 2.5 million last month."
Back in December we got this headline, and I mentioned it in one of our daily commentaries back then.
Philadelphia Fed suggests BLS overstated job growth in second-quarter by a million jobs
Video from CNBC: https://www.cnbc.com/video/2022/12/...owth-in-second-quarter-by-a-million-jobs.html
So that leads me to; how are we supposed to know how to trust or decipher any jobs data? We probably can't, so it's to the charts I go for clues, and as we saw throughout January, and to lesser extent the lows back in October, there has been a great improvement in the charts.
It is possible that we hare seeing a short-term peak, but unless we see a break in the recent trend, it may not be more than that - in other words, not a market top unless maybe we see the S&P 500 fall below the 3900-4000 area again.
The bond market and the dollar took the strong data seriously as yields popped higher, although the 10-year Treasury Yield only gained back what it lost in the prior three trading sessions, as well as remained in the right shoulder of its head and shoulders pattern.
The dollar did break above its recent trading channel, but we've seen these false breakouts before after other outlier data is released.
One thing that did get worse was the inverted 2-year / 10-year yield curve. After steepening through most of December, it is now heading south again and threatening to test the lows. Remember, this is one of the best indications of an upcoming recession that we have, although we've been hearing a lot of "it's different this time" excuses for a while. In their defense, it did originally invert back in April of 2022, and again in July, but we still haven't had an official recession. However, this is a leading indicator and it generally takes 6 to 24 months before a recession occurs after an inversion.
So, despite the mixed messages out there, the jobs data that may or may not be accurate, and the Fed who may have become less dovish after that jobs report, the charts still matter most because the story is baked into them.
There is something that some of you may not know, especially if you've only been paying attention to markets for the last 10 - 15 years. It's not normal for interest rates to be near 0% as we saw after the financial crisis and most of the time between late 2008 and into 2022, except for a period in there between 2016 and 2019 before COVID hit.
The stock market market has had the wind at its back for a long time with these low rates, and it just isn't normal. Interest rates and bond yields have been trending lower for decades, but that may have changed as you can see. It's no coincidence that the angle of incline for the stock market changed back in 2009. That's when interest rates hit 0%. Now the Fed has them back over 4% and the downtrend is broken, so the stock market may no longer act like it did from 2009 to 2021.
Buy and hold may still work, but the very low interest rates certainly benefited them more than it likely will in the coming years, so market timers, it may be your turn to shine - if you're on top of things.
The S&P 500 (C-fund) created an ugly negative reversal pattern on Friday. The indices opened lower but the bulls, who have had the momentum, fought back to erase much of the opening losses, but the rally faded again in the afternoon creating the negative reversal day. The low on Friday did successfully test the old resistance line of the ascending trading channel, so we'll have to see if that can continue to hold, if it gets back into the channel, or worst case - the channel breaks down if the selling gets much worse. For now we may have to give the bulls the benefit of the doubt because of their recent momentum, but it would not be a surprise based on the indicators I follow, to see the rally running out of steam at these levels.
The weekly chart shows that the long-term resistance line (blue) has been broken for the last two weeks. This is a bullish sign for sure, but even if that breakout holds, a retest of the breakout area is not unusual, so we'll have to keep an eye on pullbacks in the 4000 area to see if that old descending resistance line can hold it up as support now. Technically, last week's low did successfully test that line. The red circles represent reversals, both at peaks and bottoms, and we actually had reversals off the low and high last week.
DWCPF (S-fund) also created a negative reversal day although it was somewhat constructive as it filled in a small open gap from the day before. It is also sitting on the old rising trading channel near 1800 so early this week could be make or break for that breakout. A breakdown would still keep it in that trading channel, which wouldn't be a bad thing if the lower support line continues to hold. There's nothing overly bearish looking here except that it may look too extreme and in need of a pause.
The EFA (I-fund) has been lagging over the last week or so and the jobs report data spiked the dollar to add some additional pressure. It's still in an ascending channel so it's tough to get too bearish, but the negative reversal day off the the recent highs should get our attention as the January rally seems to have lost some steam here.
BND (bonds / F-fund) gapped lower as yields spiked on the very strong labor numbers. It did find support at the 200-day EMA and the 74.60 area has been holding for weeks. I don't see this as much of a threat to the F-fund because if the strong data causes the Fed to continue to raise rates, a recession becomes more likely and yields would likely fall in that case, and bond prices would rally. If the Fed stops raising rates yields could also continue to fall, so it seems like a win, win situation for bonds. If the chart happens to fall below 73, then from a technical standpoint it would change that story to a more bearish one.
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
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.
Thanks so much for reading. We'll see you back here tomorrow.
Tom Crowley
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.
