09/08/25
Stocks opened sharply higher on Friday after another disappointing jobs report. The reason stocks were up is because investors knew this meant lower interest rates are coming, and maybe lower than most had been anticipating. But it didn't take long for the indices to peak and the reality of weakening economic data had to be considered. Small caps and the I-fund held onto decent gains with yields and the dollar moving lower, and bonds and the F-fund rallied rallied strongly with those yields falling sharply.
As the labor market shows signs of weakening, which is one of the key concerns, and actual responsibilities of the Fed, the facetious, albeit stinging moniker of "Too Late Powell" may be more accurate than many want to admit. The Fed was too late in raising rates when inflation was showing its ugly head several years ago, and now if the labor market collapses there will credible claims that they waited to long to bring them back down.
Of course they had to walk a fine line with inflation potentially rising, but their effort to maintain full employment is now in jeopardy. Technically a 4.3% unemployment rate is still considered full employment, but the momentum is obviously going in the wrong direction.
The 22,000 jobs added in August was well off the 75,000 that was expected. The 4.3% unemployment rate was inline with expectations. It has been ticking higher, but to put things into perspective, here's the unemployment rate going back into the late 1940's.
The weaker than expected data sent Treasury Yields lower and initially the stock market rallied with the anticipation that this almost certainly meant we would see more than one quarter point cut in interest rates, and possibly 3 or even a 0.50% cut in there. But as I mentioned in Friday's commentary, too low of a number could instill concern about the economy and confirm that last month's disappointing jobs data was not an anomaly. That's where we stand coming into this new week after stocks reversed lower on Friday.
The 10-year Treasury Yield tumbled, but when bond yields start getting "too low", investors tend to buy stocks instead.
Current GDP estimates are showing year over year growth of over 3% but the "Sahm Rule" recession indicator is more labor market related, and with the many downward revisions, it is showing a warning sign for the economy.
I don't want to get hyper bearish on this jobs data, and we have to consider that the S&P 500 and Nasdaq both made new all-time highs on Friday before the reversal. The stock market is a forward looking indicator, often by six or more months, meaning it is pricing in more than last months jobs numbers. It is looking forward. That doesn't mean we can't get a much needed pullback as we haven't had a 3% decline on the S&P 500 since April, but what we could be seeing is the market adjusting to a stock market whose companies don't rely on physical employees as much as it used to, and the proliferation of a more AI driven workforce may be detrimental to the workforce, but not to the earnings potential of the companies that make up the stock market.
It's not like this hasn't happened before in history. The printing press replaced handwritten documents, machines replaced manual industrial labor, and computers did the work of many people in a much shorter period of time. It took an adjustment period before we all knew that these were good things and helped make humans more productive.
OK, but what does that mean for us now in the stocks market? It means the stock market has a very optimistic looking future, but again stocks don't go straight up, and maybe there will be some short-term hiccups, but that's not always a bad thing from a technical analysis standpoint.
Charts that go straight up have little support and that's when crashes tend to occur. That's the vulnerability we are living in now because, like I said, we haven't seen even a 3% decline since the lows in April. That's not sustainable and the longer that goes on, the more severe any correction may be when it does occur. But when the Fed cuts interest rates in an expansion cycle like we are in now, historically the S&P 500 has never been lower 1 - 12 months forward when you include dividends, so the bulls have a good argument.
I'm all for that as dips, pullbacks, and corrections will be opportunities. These three types of declines (4, if we include a bear market) are not created equally and we still have to play the timing game right. Buy and holders will take the full force of any decline, although they will be dollar cost averaging in if they are still contributing to their accounts, but we're due for something to occur, and maybe Friday's jobs report will be the start of something that I have been looking forward to. Of course a lot of people have been underinvested since the lows of April and that may keep any declines very shallow.
There was an interesting development last week to start the worst month of the year for stocks. The weekly chart of the S&P 500 has a positive outside reversal week. The high was above the previous week's high and the low was below the previous week's low, and the week closed with a again. Not much of a gain, but a gain. That's generally bullish for the short term.
Another interesting aspect of this chart is the open gap on the weekly chart (red box). That's very rare. There are no other open gaps on this chart that I can see going back four years, and I could have gone back further but it was getting tougher to see the chart.
Then there's the technical tendency to see a breakout retest the breakout area before resuming upward. It doesn't happen every time, but often enough as you see on this chart by the blue lines and arrows.
So the outside reversal week suggests stocks could go higher. The red open gap and the blue breakouts suggests potential pullback targets on any weakness.
The S&P 500 / C-fund made a new high at the opening bell after the release of the jobs report on Friday and that all but guaranteed one to three interest rate cuts in the coming months. It couldn't hold onto those gains, but it was also able to close well off the lows so the dip buyers were lurking again on Friday. The trend is up, it is above its 20-day average, and it made an all-time high on Friday. It may be extended, but it's tough to anticipate too much bearishness from this picture.
The DWCPF* (S-fund) managed a solid gain on Friday, despite the losses in the large cap indices. Interest rates are coming down and this tends to bring the small caps into favor - as long as the stock market as a whole is cooperating.
* There is a bad quote that occurred on DWCPF on September 3rd of 20,000 and it has distorted the chart, so until they fix that, this chart will be a 5-minute chart spanning just a few days.
ACWX (I-fund) got an assist from the dollar, which gapped down following the release of the jobs report.
The dollar is also at a key pivot point as it sits on important support after falling through the 50-day average.
BND (bonds / F-fund) gapped up as yields declined on the weaker than expected jobs data. That's a breakout but it left a big gap open so it may have to revisit that blue trading channel again at some point.
Thanks so much for reading! We'll see you 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.
Stocks opened sharply higher on Friday after another disappointing jobs report. The reason stocks were up is because investors knew this meant lower interest rates are coming, and maybe lower than most had been anticipating. But it didn't take long for the indices to peak and the reality of weakening economic data had to be considered. Small caps and the I-fund held onto decent gains with yields and the dollar moving lower, and bonds and the F-fund rallied rallied strongly with those yields falling sharply.
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As the labor market shows signs of weakening, which is one of the key concerns, and actual responsibilities of the Fed, the facetious, albeit stinging moniker of "Too Late Powell" may be more accurate than many want to admit. The Fed was too late in raising rates when inflation was showing its ugly head several years ago, and now if the labor market collapses there will credible claims that they waited to long to bring them back down.
Of course they had to walk a fine line with inflation potentially rising, but their effort to maintain full employment is now in jeopardy. Technically a 4.3% unemployment rate is still considered full employment, but the momentum is obviously going in the wrong direction.
The 22,000 jobs added in August was well off the 75,000 that was expected. The 4.3% unemployment rate was inline with expectations. It has been ticking higher, but to put things into perspective, here's the unemployment rate going back into the late 1940's.
The weaker than expected data sent Treasury Yields lower and initially the stock market rallied with the anticipation that this almost certainly meant we would see more than one quarter point cut in interest rates, and possibly 3 or even a 0.50% cut in there. But as I mentioned in Friday's commentary, too low of a number could instill concern about the economy and confirm that last month's disappointing jobs data was not an anomaly. That's where we stand coming into this new week after stocks reversed lower on Friday.
The 10-year Treasury Yield tumbled, but when bond yields start getting "too low", investors tend to buy stocks instead.
Current GDP estimates are showing year over year growth of over 3% but the "Sahm Rule" recession indicator is more labor market related, and with the many downward revisions, it is showing a warning sign for the economy.
I don't want to get hyper bearish on this jobs data, and we have to consider that the S&P 500 and Nasdaq both made new all-time highs on Friday before the reversal. The stock market is a forward looking indicator, often by six or more months, meaning it is pricing in more than last months jobs numbers. It is looking forward. That doesn't mean we can't get a much needed pullback as we haven't had a 3% decline on the S&P 500 since April, but what we could be seeing is the market adjusting to a stock market whose companies don't rely on physical employees as much as it used to, and the proliferation of a more AI driven workforce may be detrimental to the workforce, but not to the earnings potential of the companies that make up the stock market.
It's not like this hasn't happened before in history. The printing press replaced handwritten documents, machines replaced manual industrial labor, and computers did the work of many people in a much shorter period of time. It took an adjustment period before we all knew that these were good things and helped make humans more productive.
OK, but what does that mean for us now in the stocks market? It means the stock market has a very optimistic looking future, but again stocks don't go straight up, and maybe there will be some short-term hiccups, but that's not always a bad thing from a technical analysis standpoint.
Charts that go straight up have little support and that's when crashes tend to occur. That's the vulnerability we are living in now because, like I said, we haven't seen even a 3% decline since the lows in April. That's not sustainable and the longer that goes on, the more severe any correction may be when it does occur. But when the Fed cuts interest rates in an expansion cycle like we are in now, historically the S&P 500 has never been lower 1 - 12 months forward when you include dividends, so the bulls have a good argument.
I'm all for that as dips, pullbacks, and corrections will be opportunities. These three types of declines (4, if we include a bear market) are not created equally and we still have to play the timing game right. Buy and holders will take the full force of any decline, although they will be dollar cost averaging in if they are still contributing to their accounts, but we're due for something to occur, and maybe Friday's jobs report will be the start of something that I have been looking forward to. Of course a lot of people have been underinvested since the lows of April and that may keep any declines very shallow.
There was an interesting development last week to start the worst month of the year for stocks. The weekly chart of the S&P 500 has a positive outside reversal week. The high was above the previous week's high and the low was below the previous week's low, and the week closed with a again. Not much of a gain, but a gain. That's generally bullish for the short term.
Another interesting aspect of this chart is the open gap on the weekly chart (red box). That's very rare. There are no other open gaps on this chart that I can see going back four years, and I could have gone back further but it was getting tougher to see the chart.
Then there's the technical tendency to see a breakout retest the breakout area before resuming upward. It doesn't happen every time, but often enough as you see on this chart by the blue lines and arrows.
So the outside reversal week suggests stocks could go higher. The red open gap and the blue breakouts suggests potential pullback targets on any weakness.
The S&P 500 / C-fund made a new high at the opening bell after the release of the jobs report on Friday and that all but guaranteed one to three interest rate cuts in the coming months. It couldn't hold onto those gains, but it was also able to close well off the lows so the dip buyers were lurking again on Friday. The trend is up, it is above its 20-day average, and it made an all-time high on Friday. It may be extended, but it's tough to anticipate too much bearishness from this picture.
The DWCPF* (S-fund) managed a solid gain on Friday, despite the losses in the large cap indices. Interest rates are coming down and this tends to bring the small caps into favor - as long as the stock market as a whole is cooperating.
* There is a bad quote that occurred on DWCPF on September 3rd of 20,000 and it has distorted the chart, so until they fix that, this chart will be a 5-minute chart spanning just a few days.
ACWX (I-fund) got an assist from the dollar, which gapped down following the release of the jobs report.
The dollar is also at a key pivot point as it sits on important support after falling through the 50-day average.
BND (bonds / F-fund) gapped up as yields declined on the weaker than expected jobs data. That's a breakout but it left a big gap open so it may have to revisit that blue trading channel again at some point.
Thanks so much for reading! We'll see you 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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