/ January 10
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Friday:
Non Farm Payrolls (160K exp.)Unemployment Rate (4.2%)
Michigan Consumer Sentiment (73.9 exp.)
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Friday:
Delta Air Lines (DAL)
Walgreens Boots Alliance (WBA)
Constellation Brands (STZ)
Daily Briefing
*A choppy stock market session precedes today’s critical labor market report; investors were dealing with rising rates (10-yr yield hitting 4.73% at its high), volatile mega caps, and some economic releases; ultimately, the S&P 500 settled 0.2% higher and the Dow Jones Industrial Average rose 0.3% while the Nasdaq Composite declined 0.1%;
*Positioning changes continue to run amok over the last few trading days; however, we will be watching closely how the first week of trading wraps up, which historically sets the tone for the month; in that sense, today’s Non Farm Payrolls report holds the key, with expectations of 160K job adds and a 4.2% headline employment rate; hotter numbers than these might send the stock and the bond market lower;
*SPY remains in technical limbo, with superficial support at the recent lows ($584); resistance stands at $603 (M-Trend), while the next significant support level is around $550, (-6.6% lower than the last close);
*The MACD signal continues to trend lower without any sign of stopping; the only silver lining here is that once we do get a bullish crossover, it will occur from a low enough value to translate into upside;
*Economic data included a below-consensus ADP Employment Change report for December (122,000 vs 131,000 consensus), and an unexpected drop in weekly Initial Claims (201,000 vs 218,000 expected);
*The key takeaway from these reports is that layoff activity is low, but for employees that lose their job it has become more challenging to find a new one; this info was already discussed earlier in the week, and we now have additional confirmation;
*Market participants also received the FOMC Minutes for the December 17-18 meeting, which echoed Fed Chair Powell's remarks in his press conference after the meeting; the minutes conveyed a belief that the Fed should hold off on another rate cut until it has more confidence in inflation returning to its 2% target and/or more concern about the labor market deteriorating in a more pronounced manner;
*The market implies a 50/50 chance the Fed will cut by 25bps or 50bps during the remainder of the year; it assigns a 15% they don’t cut and about 20% they cut by more than 50bps; as a reference, in September, when the Fed initially cut rates by 50 bps, the market thought Fed Funds would end 2025 at 2.80% (now priced in at 0.1%);
*Stocks and bonds generally took the releases in stride;
*Basic Materials (XLB) and Healthcare (XLV) outperformed on the day, with returns higher than +0.5%, while Transports (XTN), Tech (XLK) and Utilities (XLU) finished slightly lower; most sectors finished well into in positive territory nonetheless;
*The 10-yr yield rose one basis point to 4.69% and the 2-yr yield settled one basis point lower at 4.29%;
*TLT remains technically un-investible;