A Disappointing Jobs Report Brings Pre-Market Volatility

The latest Employment Situation report showed weak jobs growth. Many investors are looking at the report to try and divine what the Fed will do as far as tapering. Sticky wage inflation could cause a problem. Stock futures are volatile as the bulls try to follow up the recent hat trick. A rally in copper futures appears to be helping the Materials sector.

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5 min read
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Key Takeaways

  • Jobs Report Disappoints, Will the Fed Taper? 

  • Stocks Up Third Day in a Row as S&P 500 Tests 50-Day Moving Average 
  • Investors Looking for a Copper-Bottomed Deal in Materials

(Friday Market Open) Investors were in wait and see mode before the Employment Situation Report and then the volatility hit. Non-farm job growth was expected to be around 500,000 but the number was only 194,000. This shows how difficult predicting job growth has been during the pandemic. The difficulty in finding childcare, the delta variant, and extra unemployment benefits have contributed to keeping workers home.

Large job losses were seen in education as the labor participation rate fell in the sector. Travel and leisure failed to add more jobs. Average hourly pay rose as expected on higher than expected work hours. Higher pay is failing to entice workers back into the job market, which could be concerning because wage inflation may be stickier than the Fed wants.

Many economists and central bankers were projecting that September would be the time that many workers would get back into the job market. Getting back to work could go a long way to opening the supply chain. If the supply chain opens, then the Fed can feel more comfortable in tapering their stimulus.

Tesla (TSLA) isn’t waiting for the Fed to take actions, at the company’s investor conference, it announced plans to move its headquarters from California’s Silicon Valley to Austin, Texas. Tesla cited the availability of land and a more growth friendly environment as reasons for the move. However, the company does plan to maintain and even expand its California operations.  

After Thursday’s close, Quidel (QDEL) rallied almost 9% on news that the company is ramping up production on its rapid COVID-19 tests because of nationwide shortages. The company also released its preliminary revenue for its fiscal third quarter. The company is seeing a surge in professional and over-the-counter demand and was granted a 12-month contract worth $284 million.

Hitting the Ceiling

Stocks extended the recent rally into a third day with the news that a temporary debt ceiling deal could be made. The deal was later confirmed when Senate Majority Leader Chuck Schumer reported he had struck a deal with Senate Minority Leader Mitch McConnell for a short-term extension. Investors welcomed the development with a buying frenzy. However, the frenzy fizzled as the S&P 500 (SPX) closed well off its high for the day.

Volatility was also felt in oil prices. On Wednesday, the news from President Putin that Russia would help meet the energy needs in Europe prompted a sell-off in Crude Oil (/CL). Oil was still heading down Thursday morning but rallied to close 1.1% higher on the day. Bond investors didn’t seem to buy the sell-off in oil because the 10-year Treasury Yield (TNX) spiked up on the open and traded gradually higher throughout the day.

While energy stocks did trade higher with the rally in oil and financial stocks traded higher with yields, it was the Materials ($IXB) sector that led Thursday’s rally. Consumer Discretionary ($IXY) and Health Care ($IXV) rounded off the top three sectors. Utilities ($IXU) was the lone sector in the red. 

SPX Price Pattern

CHART OF THE DAY: SUPPORT GROUPS. The S&P 500 (SPX—candlesticks) is battling declining resistance and rising support (yellow lines) or a triangle price pattern on an intraday chart. Triangle patterns are commonly considered continuation patterns of the recent trend. If support breaks, the index may test the 4200 support level (green line). Chart source: The thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Basic Materials Girl: Despite leading the Materials sector, there was no news directly related to Freeport-McMoRan (FCX). Per Trefis, 77.1% of the company’s mining operations is in copper. Copper futures (/HG) rose 2.54% off its 200-day moving average. It reached a new high in May but has since pulled back and consolidated. Investors may be anticipating a bounce in copper that could make mining more profitable for FCX.

Many investors see rising copper prices as a good economic signal. Unlike gold and silver, which are often used as a hedge against inflation and/or bear markets, copper is used in manufacturing components—particularly electronics and wiring. Therefore, rising copper prices could signal a lift in manufacturing, which means more orders to meet rising consumption.  

Missed the Turn: Investors may have gotten their wires crossed because Ford (F) was among the top performers in the S&P 500 on Thursday. General Motors (GM) held an analyst meeting on Wednesday, and Tesla (TSLA) held its famous investor conference on Thursday. Yet, somehow Ford caught the attention of investors.  

Ford rallied with the overall market but also received a boost on news that Tata Motors (TTM) would take over Ford’s India car manufacturing plant in Chennai. While the news gave Ford a boost, it appeared to turbo charge Tata because the stock rallied more than 15% to a new 52-week high.   

Up for Auction: eBay (EBAY) was also among the top performers in the S&P 500 but didn’t have any company-specific news. The more than 4% rally in the stock came after bouncing off its 100-day moving average and shot past its 50-day moving average. With jammed supply lines, perhaps investors are thinking holiday shoppers may turn to online auctions to get their gifts. 

Good Trading, 

JJ

@TDAJJKinahan

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Key Takeaways

  • Jobs Report Disappoints, Will the Fed Taper? 

  • Stocks Up Third Day in a Row as S&P 500 Tests 50-Day Moving Average 
  • Investors Looking for a Copper-Bottomed Deal in Materials

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