Will Friday's Jobs Report Be 'Just Right' for Stocks?

Wednesday's market continued to struggle for a second day following data that triggered worries about sticky inflation. Bonds bounced back after a gap-down open and had small gains, and stocks found some weak support, but the bounce action was weak.

Breadth was around 3,500 gainers to 6,000 losers. However, the more important stat was 320 new 12-month lows to 95 new highs. Small-caps IWM were the big losers and the Magnificent Seven MAGS names finished close to flat.

The market has been ignoring weak bonds and higher interest rates for months. Market players have even shrugged off the possibility that the Fed may not cut rates at all in 2025, but an uptick in the cost of services and signs of strength in the labor market finally triggered a reaction on Tuesday, and now the Goldilocks economic narrative has been lost as inflation concerns grab the headlines.

There are some bullish optimists who believe the market has overreacted and that the inflation pressures will subside when the economy grapples with many Trump policies that could slow growth in the near term. There will be a tremendous amount of news flow when Trump takes office on January 20, and the impact, in many cases, will not always be immediately positive.

The market is closed on Thursday in recognition of Jimmy Carter, but on Friday morning, the December jobs news will be released, and it will provide some insight into whether things really are so hot that inflation is a problem. A not-too-hot and not-too-cold employment report could be the catalyst for a good bounce.

There is a very high level of uncertainty about the economy and a great amount of concern about the concentration of big-cap technology stocks in the indexes. It is a recipe for elevated volatility, but volatility can be a good thing for astute traders.

Enjoy the day off. I will see you on Friday.

At the time of publication, Rev Shark had no positions in any securities mentioned.