February 6th, 2023

Job Creation Shocks The Market

If we’re heading into a recession, how were we met with better-than-expected job growth numbers last week? Unemployment dropped, despite the headlines of tech companies planning to lay off thousands of workers. How is all of this possible? And now what will the Fed do about it?

First, let’s take a look at the numbers that rattled the market. January’s jobs report showed a gain of 517,000 jobs in January, crushing estimates. The unemployment rate hit a 53-year low!

Part of this can be explained by the market’s cyclical rotation and the pandemic’s long-lasting effects on the market.

One area that was hit particularly hard by the pandemic was travel and leisure and for months this sector has been back on the rise, trying to replace jobs and get back to pre-pandemic levels.

The airline industry is another industry coming back. The industry is saying it expects to be profitable once again in 2023 after a three-year downturn after the pandemic. Yes, video conferencing has cut into corporate travel, but it hasn’t replaced the overall demand from corporations and consumers.

So it’s no surprise to see Leisure and Transportation on the list of top January jobs gained. As long as wage growth continues to cool, the number of jobs created shouldn’t get in the way of the bull market, but it certainly increases the odds that the Fed won’t cut rates this year.

Speaking of which, the Fed never signaled rate cuts in 2023. The market was betting on seeing one or two later this year, but remember, the Fed never put them on the table.

Despite the market falling on Friday, it’s no more than profit-taking or a standard pullback at this point. We broke the macro downtrend line a couple of weeks ago and we’re still in a new short-term uptrend.

Here’s a chart of the S&P 500 (SPY) showing the recent price action. Not only are we still within the short-term trend lines, but this chart shows about three months of data. The overall price is moving from the lower left to the upper right, and if you didn’t know what happened in 2022 and just saw a picture of this chart, you’d probably say this ticker is in an uptrend.

Even if we do break down and head below the trend lines, I’m looking for support around $392 (about 5% lower from here), which would be a bounce off the line that was acting as resistance and it coincides with a Fibonacci retracement line. 

Ok, let’s see what market reports have the best chance of influencing the market this week.

Tuesday – 8:30 am EST – International Trade In Goods And Services – The deficit is expected to grow by $7.4 billion, going from $-61.5 billion to $-68.9 billion.

Wednesday – 9:20 am EST – FOMC Member, John Williams speaks

Wednesday – 10:30 am EST – Petroleum Status Report – The last report showed crude oil inventories of 4.1 million barrels. An increase (or decrease) in inventories will show where supply and demand are heading and could influence pricing.

Thursday – 8:30 am EST – Jobless Claims – Claims are expected to increase from 183k to 190k, bringing the 4-week moving average to 191.75k.

Friday – 4:00 pm EST – FOMC Member, Patrick Harker speaks

I will be back tomorrow with a trade idea – and right now I’m looking at an earnings play in the travel and leisure industry.

If you have any questions, comments, or anything we can help with, reach us at any time.
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Jeff Wood

Editor, Filthy Rich Dirt Poor

Trader, Options Testing Lab

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