Hello traders
I hope you had a good week!
As I sit to write this, the widely anticipated Non-Farm Payrolls report is still being digested by investors. The early indication seems to be that “bad news” is once again good for markets, as a print of just 194k fell far short of the consensus estimate of 500k. Earlier in my career I learnt that “the first move, is often the wrong move” following the release, although this time it seems more relevant given the policy led environment that we find ourselves in.
U.S. Fed Chairman Jerome Powell recently confirmed his intention to begin tapering stimulus as early as next month, which was one of several reasons why the equity market endured a turbulent time in September. Investors had seemingly come to accept this as a sure thing, with a Bloomberg news article citing that an increase by as little as 238k in the NFP data may have been enough to preserve this. Today’s print of 194k is not just low – but in fact very weak – which may once again call the Fed’s intended action in to question. So here we are again, where bad data = good news for stocks.
Our last couple of posts have focused on the rising volatility stemming from fears over China, the US debt ceiling and the Fed. With each of these headaches beginning to ease, it might well be time to find some optimism in the catalysts that lie ahead. After all, earnings season is nearly underway (again!) and October has traditionally marked the start of strong seasonal performance in equities. With the S&P 500 having shed almost -5% in September, fund managers will be looking to pick up some performance to improve their numbers in the final quarter…
Whilst I cannot reveal the score for our Equities Checklist just yet, I can tell you that it shows a very clear setup for us to weigh against these other sentiments right now.
Away from the stock market, I would like to highlight the setup in gold. The precious metal has come under pressure in recent weeks given a fall in real yields in response to shifting expectations around the timing of the Fed’s taper. This month however sees the score positive at +3, which suggests that gold may be supported this month. Although the historical tendency for risk assets to rally at this time of year sees seasonality working against gold, the only other negative (and a small one at that) is in the futures positioning. Everything else is otherwise positive, save for the one neutral score for the ETF flows.
As you can see, after a difficult September there are signs of the market possibly forming a bottom around the low seen at the beginning of the month when the Checklist scores were updated. There is still some way to go for this to gather momentum, but I think that it warrants closer attention in the next couple of weeks.
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Have a great weekend,
James
Disclaimer: For educational purposes only. Even though we do our best to provide reliable data, you should not trade based on this information.
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