Labor Day Relief

After the last three weeks, markets need a little Labor Day rest.

Bettmann Archive

Key Takeaways

If you attend a party this weekend and see people drinking, it might be a toast to the end of summer or it might be born of relief this week is over. Markets are on pace for a third consecutive week of losses and this week in particular has been brutal. Last Thursday, prior to Jerome Powell’s comments from Jackson Hole, the S&P 500 closed just under 4,200. Yesterday, it closed just under 3,967 which is a 5.5% drop. It remains to be seen if today’s jobs number can reverse the market’s fortune, but in premarket trading there’s reason for hope.

Markets were looking for 300K new jobs created but the actual number was marginally better at 315K. The unemployment rate jumped slightly to 3.7% and average hourly earnings were up 5.2% year-over-year vs. expectations of 5.3%. It’s unlikely this number will have any impact on Fed plans to raise interest rates when they meet in September. Currently, the expectations are for another 0.75 basis point increase. One thing to keep in mind about today’s number, August is a month notorious for revisions and typically those revisions are to the upside. Therefore, when the September jobs number is released, I’ll be looking for any changes to the August number.

The carnage in markets the last few weeks has not been limited to equities. Bonds and oil have also been caught up in the selling. Yields on 30 year bonds are now over 3.35% and 2 year notes are yielding around 3.5%, reflecting the market’s belief more interest rates hikes are coming. One positive from the drop in oil futures to $88/barrel after trading as high as $97 just last week is the drop in gasoline prices. Prices for regular unleaded gasoline have fallen eleven consecutive weeks and now average around $3.80. We’re also seeing quite a bit of volatility in other commodities such as corn and soybeans as the market grapples with understanding the true level of inflation.

Bitcoin BTC prices continue to hover near $20,000 in premarket trading. I often talk about bitcoin as a confidence indicator with $20,000 being a key level. There appears to be a ton of support at that level; however, because you cannot short bitcoin, what you’ll notice is a correlation with investor sentiment. When the market is pessimistic, bitcoin will hang around at its current level. Once enthusiasm picks up, we tend to see it gain momentum.

There were some interesting developments with individual stocks overnight. Both Broadcom AVGO and Lululemon reported better than expected earnings and offered optimistic outlooks. Broadcom really seemed to buck the trend in the chip sector; however, the stock is only seeing about a 2.5% boost premarket. That may be a reflection of market skepticism given how other chip stocks have performed. Lululemon, on the other hand, is up nearly 10% after the high end retailer reported better than expected numbers and raised full year guidance.

As we head into Friday, it’s important to keep in mind with a three day weekend on tap, volume will likely dry up considerably as the day progresses. That can make for a boring day but it can also make for a potentially volatile day, especially with VIX over 25. Next week is a relatively quiet week in terms of economic data and earnings but could serve as a week where markets digest earnings season and the most recent economic data. But for now, I think we’ve all earned a long weekend so let’s enjoy it.

tastytrade, Inc. commentary for educational purposes only.