Stocks took another beating on Friday as September's bearish reputation is still intact after 4 straight losing days for the S&P 500 and the small caps to start the month. The jobs report missed estimates by about 20K while the unemployment rate came inline with the 4.2% estimate, and that was a tick lower than the prior month. The negative revisions of prior reports made the report a little worse than it appeared and that led to the sell off.
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The August jobs report estimates were looking for a gain of about 165,000 jobs, and it came in at +142K. That's not great but even worse is that June's report was reduced by 61K, and July's was lower by 25K. That's more than 100K shaved off of three months worth of data.
I know I've expressed my frustration about these revisions but this is how bad it has gotten recently. The June jobs report estimates were looking for 200K and the actual number was reported as 208K. A beat, and stocks rallied that day. The next month that number was revised down to 179K. Down, but solid number. Now on Friday they took the June number down again to 118,000. Meanwhile money managers and us investors are trying to figure out what is going on with the economy, and we sure seem to be getting misled, or they actually don't know what these numbers are. I'm sure it's not easy to be precisely accurate but what data do they have to say 208K, and then two months later that number changes to 118K?
The 10-year Treasury Yield was up initially after the release of the jobs data, then down but it ended the day close to flat so it held at the prior lows for now, and may look to find some support here near 3.7%
What did happen was that the 2-year yield closed below the yield of the 10-year for the first time since July of 2022 meaning it is currently not inverted anymore. The black line is the 10-year and the red is the 2-year.
I've showed this chart a few times but as a reminder, in both 2001 and later 2007, when the yield curve un-inverted, stocks were in multi-year bear markets. But before you sell everything, it probably is different this time. In those prior incidences the Fed began cutting rates as a result of financial panic. In this current situation the rate cuts are a result of the Fed taking back rate hikes initiated because of inflation.
Yes, the economy is showing some signs of weakness, but the Fed was intending to cool off the labor market in order to get that inflation under control, and they've dome that. Now they just have to try to thread the needle and not allow that 5.25% increase in the Fed Fund Rate to kill the jobs market, the economy, and perhaps the stock market.
The weaker than expected jobs report wasn't bad enough to cause any panic in the Fed Funds Rate speculation, although these numbers moved wildly during Friday's trading, but eventually it ended up where it has been for the last week. That is, a 70% chance of a 0.25% cut, and a 30% chance of a 0.50% cut. A 0.50% cut next week sounds like it would be more beneficial to the stock market, but it would be a sign that the Fed is more concerned about the economy than they've been letting on, and it could backfire on investors, so 0.25% is the number Wall Street wants.
The Dow Transportation Index had been showing signs of holding up but it hit a wall at the head test of the head and shoulders pattern. Now it is near the neckline again and will look for support, or look out below.
I also mentioned the Financial sector holding up very well, but the last two trading days have changed that. However, it is nearing support at 44, which is the old breakout area and it's very typical to see a pullback to that level after a breakout, but it has to hold.
Volatility is up again so early rallies could fail or deep sell offs could get bought. As you'll see in the TSP Fund chart section below, we've seen gaps get filled and support areas getting tested, and one thing to worry about if these levels can't hold, is a test of the August lows.
We'll get the CPI report on Wednesday, and the PPI on Thursday.
The S&P 500 (C-fund) plunged 1.7% on Friday, falling right through the 50-day EMA and filling in that large open gap from August 15. Technically there is another open gap down by 5350, just below a couple of other layers of support. Those support areas may be all that is keeping this from falling and retesting the August lows. From a technical analysis standpoint, that's always possible and it would be a clean area for a potential double bottom, but unless we get another Yen carry trade panic or the like, the fundamentals may not be bad enough to see that happen.
The DWCPF (S-fund) fell through a lot of support last week and there's a free path down to the 200-day EMA if the bears want it. The inverted head and shoulders pattern lost some of its form with Friday's big move down, but it's not completely dead yet.
The EFA (I-fund) also fell down to some key moving averages. It filled an open gap but there's two more below. 79 looks to be the last hope support level, but that is a lot of support between 78 and 80.
BND (F-fund) made another new high but the whippy action in bonds and yields makes me think this may need a little rest - even if it is just a test of the bottom of this rising red channel again.
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 use additional methods and strategies to determine fund positions.
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The August jobs report estimates were looking for a gain of about 165,000 jobs, and it came in at +142K. That's not great but even worse is that June's report was reduced by 61K, and July's was lower by 25K. That's more than 100K shaved off of three months worth of data.
I know I've expressed my frustration about these revisions but this is how bad it has gotten recently. The June jobs report estimates were looking for 200K and the actual number was reported as 208K. A beat, and stocks rallied that day. The next month that number was revised down to 179K. Down, but solid number. Now on Friday they took the June number down again to 118,000. Meanwhile money managers and us investors are trying to figure out what is going on with the economy, and we sure seem to be getting misled, or they actually don't know what these numbers are. I'm sure it's not easy to be precisely accurate but what data do they have to say 208K, and then two months later that number changes to 118K?
The 10-year Treasury Yield was up initially after the release of the jobs data, then down but it ended the day close to flat so it held at the prior lows for now, and may look to find some support here near 3.7%
What did happen was that the 2-year yield closed below the yield of the 10-year for the first time since July of 2022 meaning it is currently not inverted anymore. The black line is the 10-year and the red is the 2-year.
I've showed this chart a few times but as a reminder, in both 2001 and later 2007, when the yield curve un-inverted, stocks were in multi-year bear markets. But before you sell everything, it probably is different this time. In those prior incidences the Fed began cutting rates as a result of financial panic. In this current situation the rate cuts are a result of the Fed taking back rate hikes initiated because of inflation.
Yes, the economy is showing some signs of weakness, but the Fed was intending to cool off the labor market in order to get that inflation under control, and they've dome that. Now they just have to try to thread the needle and not allow that 5.25% increase in the Fed Fund Rate to kill the jobs market, the economy, and perhaps the stock market.
The weaker than expected jobs report wasn't bad enough to cause any panic in the Fed Funds Rate speculation, although these numbers moved wildly during Friday's trading, but eventually it ended up where it has been for the last week. That is, a 70% chance of a 0.25% cut, and a 30% chance of a 0.50% cut. A 0.50% cut next week sounds like it would be more beneficial to the stock market, but it would be a sign that the Fed is more concerned about the economy than they've been letting on, and it could backfire on investors, so 0.25% is the number Wall Street wants.
The Dow Transportation Index had been showing signs of holding up but it hit a wall at the head test of the head and shoulders pattern. Now it is near the neckline again and will look for support, or look out below.
I also mentioned the Financial sector holding up very well, but the last two trading days have changed that. However, it is nearing support at 44, which is the old breakout area and it's very typical to see a pullback to that level after a breakout, but it has to hold.
Volatility is up again so early rallies could fail or deep sell offs could get bought. As you'll see in the TSP Fund chart section below, we've seen gaps get filled and support areas getting tested, and one thing to worry about if these levels can't hold, is a test of the August lows.
We'll get the CPI report on Wednesday, and the PPI on Thursday.
The S&P 500 (C-fund) plunged 1.7% on Friday, falling right through the 50-day EMA and filling in that large open gap from August 15. Technically there is another open gap down by 5350, just below a couple of other layers of support. Those support areas may be all that is keeping this from falling and retesting the August lows. From a technical analysis standpoint, that's always possible and it would be a clean area for a potential double bottom, but unless we get another Yen carry trade panic or the like, the fundamentals may not be bad enough to see that happen.
The DWCPF (S-fund) fell through a lot of support last week and there's a free path down to the 200-day EMA if the bears want it. The inverted head and shoulders pattern lost some of its form with Friday's big move down, but it's not completely dead yet.
The EFA (I-fund) also fell down to some key moving averages. It filled an open gap but there's two more below. 79 looks to be the last hope support level, but that is a lot of support between 78 and 80.
BND (F-fund) made another new high but the whippy action in bonds and yields makes me think this may need a little rest - even if it is just a test of the bottom of this rising red channel again.
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.
