Bulls Shrug Off Employment Worries and Buy the Dip
Was this just a reflexive bounce or can the market regain its footing and keep running up from here?
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The market’s very poor response to employment news on Friday was quickly forgotten on Monday. The indices filled the downside gap that was created on Friday morning and are now back to where they were after Jerome Powell’s hawkish press conference, when he insisted that employment was very strong.
The bounce on Monday was steady all day, with the indices closing near the highs. Breadth was superb at more than four-to-one positive, but new 12-month highs contracted to just 220. The Magnificent Seven MAGS and the Russell 2000 IWM were leaders, and there was plenty of speculative strength in secondary stocks.
It isn’t too surprising that dip-buyers took advantage of the most significant pullback in the indices since April. Increased odds of a Fed rate cut in September were an easy justification for putting some money to work. Most pundits are now expecting two or three cuts by the end of the year.
The revision in employment numbers on Friday was surprising, but of the 48 employment reports under President Biden, 45 of them were revised lower. The employment market has been struggling for a while, and there really wasn’t a sudden shift. There has been anecdotal evidence since before the election, and the data on Friday just confirmed what was already evident.
Can the market regain its footing and keep running up from here, or was this just a reflexive bounce that will allow the skeptics to escape at better prices? While a rate cut down the road is a positive, there is still a risk of increased inflation and slowing growth. A rate cut will be discounted by the market pretty quickly if there is more economic deterioration.
The problem for the economic bears is that they have been anticipating problems for many months now, and it just isn’t happening. They are convinced it is just a matter of time, but the Trump administration is extremely optimistic that their policies will create a boom as they filter through the economy.
For now, the bulls are back in the driver’s seat, and the bears are extremely frustrated that they couldn’t take advantage of what looked like an economic stumble under Trump.
Have a good evening. I’ll see you tomorrow.
At the time of publication, DePorre had no positions in any securities mentioned.
