April 10th, 2023

Another Indicator Flashing A Bullish Signal For The Market This Year

While the market was taking a day off last Friday, the latest Employment Situation report was still released. Depending on your stance on the market, you could interpret the report in a way that helps fit your narrative. That’s been the case with several of the latest reports.

On the one hand, the unemployment rate ticked lower to 3.5% as the participation percentage went higher. Hourly wages year-over-year dropped from 4.6% to 4.2%.

Most notably though, the gains in non-farm payrolls only grew by 236,000 for March, which was lower than the estimated 238,000 and below the revised 326,000 made in February.

This could be read as positive for the market, despite the report falling short of expectations.

The reason why is that it shows the economy is cooling and inflation should follow. It also shows a slowing pace of hiring, which should help with wage inflation that has been on the Fed’s mind as of late. It’s one step closer to the Fed dropping rates. That could be a reason why S&P 500 futures closed higher on Friday, despite Wall Street being closed. The S&P 500 futures are now about 40 points higher than where the SPX closed on Thursday.

On the other hand, those who are bearish on the market will use this report to show that unemployment claims are on the rise, and monthly job creation is at a 12-month low. That’s the signal that the recession is coming and the market is soon to crash. Those who are bearish will also be quick to point out that only 20 stocks account for nearly 90% of the index’s $2.36 trillion gains this year.

Where is the market going?
Tech stocks continue to rally as the market expects the Fed will pivot and lower interest rates. The Technology ETF (XLK) went higher by 9% in March. The VanEck Semiconductor ETF (SMH) gained 9.1% in March as well.

I’m also looking at some statistics on the broader market. During the first quarter of 2023, the market didn’t fall below the December low of 2022. Since 1950, when the S&P 500’s first quarter low was above its December low, the index has averaged a full-year gain of 18.6%.

While everyone is beating the recession drum, there are some bullish reasons to be more focused on the market cycle instead of the economic cycle. Of course, the upcoming earnings season will tell us more.

In the meantime, it’s Monday, so that means it’s time to take a look at the reports that have the highest probability of moving the markets this week.

Here are the biggest reports of the week.

Wednesday – 8:30 am EST – Consumer Price Index (CPI) – The month-over-month numbers are supposed to improve slightly from a 0.4% to 0.3% reading. The year-over-year number is expected to improve significantly from 6.0% to 5.2%. It’s not that simple though. If you exclude Food and Energy, the month-over-month reading is expected to drop by 0.1% but the year-over-year number is set to increase by 0.1%.

Wednesday – 2:00 pm EST – FOMC Minutes – Another week of Fed-influenced market moves. Oh, fun.

Thursday – 8:30 am EST – Jobless Claims – Claims are expected to come in at 233k, up from last week’s 228k. That would bring the 4-week moving average up to 237.75k

Thursday – 8:30 am EST – Producer Price Index (PPI) Final Demand – Producer prices in March are expected to hold unchanged, which could show that while inflation is cooling over the longer term, we could be slowing the rate of decline.

Friday – 8:30 am EST – Retail Sales – Retail sales in March are expected to show the second straight month of dropping 0.4%. If you exclude autos, the drop is even higher.

Friday – 9:15 am EST – Industrial Production – The bright report this week is Industrial Production, which is expected to increase 0.3% in March, after February’s no change. The capacity Utilization Rate is also supposed to show an increase in March, from 78% to 78.8%.

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Jeff Wood

Editor, Filthy Rich Dirt Poor
Coach, Options Testing Lab

Any trade or trade idea discussed is for educational purposes only.  They will not be tracked as an official trade recommendation.