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Market Update

Cold Comfort: Slower Jobs Growth Could Slow Fed Policy

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May 6, 2015

If the stock market wasn’t already fixated on Friday’s jobs report, it likely is now. That’s after a pretty ugly report on private-sector hiring from ADP this morning. News reports are quick to point out this morning that April’s sub-200K private-sector hiring tally follows another sub-200K reading a month earlier. That’s the first time for back-to-back readings below that line in about two years.

There are bright spots in the job market, there’s no denying that, and this pause could be transitory, but there’s no denying that the pace of job creation has slowed over the past several months. Now, what does that mean for stocks? Remember, it’s not uncommon to slip into that “bad news” is “good news” mindset. That’s because reports like these could slow down the Federal Reserve’s interest rate plans. It’s hard to cheer job market weakness.

FIGURE 1: BELOW KEY LEVEL.

The S&P 500 (SPX) closed Tuesday below the closely watched 2100 level and neared a test of support at 2080. Data source: Standard & Poor’s. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Wrong Direction? The U.S. created a pretty wimpy 169,000 private-sector jobs in April, payrolls processor ADP’s data showed. What’s more, the reading follows a downwardly revised 175,000 jobs created in March. Some economists and investors look to ADP’s report to set the tone for Friday’s often market-moving monthly job-market snapshot issued by the Labor Department. March’s ADP report was pretty close to the Labor Market’s March version. Wall Street economists think Friday’s April payrolls tally will come in at 233,000. Will they have to rethink that guess?

Oil: Upward Trend. Energy stocks could find some support as U.S.-traded crude oil futures briefly touched $62 a barrel, a level not seen since December, and the continuation so far of an upward trend chart that’s stretched over a month and a half. The lead crude contract closed above $60 a barrel on Tuesday for the first time in some five months and it was up another 2.6%, at $61.97 early Wednesday. London-traded brent crude was up some 2.4% early Wednesday. Industry analysts and news report cited a weaker dollar in helping to push crude prices higher this week, as well as Saudi Arabia’s decision to lift its official selling prices to North America and Europe.

Next for SPX? We’ve talked about the psychologically significant 2100 line for the S&P 500 (SPX) ad nauseam over recent sessions. Tuesday’s close was not only below 2100 but neared a test of support at 2080. Some technicians say there’s not much in the way to slow a retreating SPX if it drops below 2080, with support next stepping in at 2040.

Good trading,
JJ
@TDAJJKinahan

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