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Market Update

Tick-Tock, Tick-Tock… Are Investors Waiting for Friday’s Jobs Numbers?

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October 6, 2016

(Thursday Market Open) Is it still summer? The markets looked to be straddling the flat line in the early going today as traders appear to be putting off making major moves ahead of Friday’s much-anticipated employment report.

Shares of Twitter (TWTR), which had jumped in recent sessions amid talk of a takeover, lost much of that mojo and appeared to help feed the market decline after a report from ReCode, the tech-heavy news group, said that the social-media company won’t be the magnet investors had been betting, noting that power hitters Apple (AAPL), Alphabet (GOOG), Google’s parent, and Disney (DIS) are not likely to make bids. Shares were off some 17% ahead of the bell as volume surged.

The lifelessness in the markets contrasted yesterday when they were in fine form, possibly taking a cue from the unexpected surge in the services sector in September. The Institute for Supply Management index touched its highest level in 11 months, shooting up to 57.1% from 51.4% in August. Conditions are improving when the index number moves above 50.

That gave investors—and the Federal Reserve—something to cheer about. It’s yet another piece of data that the economy is still moving forward and one that the Fed will probably use as a piece of its justification for an interest-rate move in the coming months, most likely December, according to Chicago Mercantile Exchange’s futures trading. Yesterday, Richmond Fed President Jeffrey Lacker underscored the sentiment, noting that a strong U.S. jobs report will help boost the case for a bump in interest rates sooner rather than later.

All three major benchmarks moved to the upside, snapping a two-day losing trend. Crude oil also got a boost while the VIX, Wall Street’s fear gauge, retreated to levels it loafed at all summer. But all fixed-income got smashed yesterday and the yield on 10-year Treasury bonds sat at 1.7%.

With the markets and oil running in tandem now, ahead of what the Fed has all but promised will be a step up in interest rates, might the markets be pricing in that rate hike? That was the theme market pundits focused on through much of Wednesday’s trading day. Proponents of a Fed increase have long pointed to the historically low levels interest rates are still at, even with a tap higher. Meanwhile, the correlation between the SPX and oil looks like it may be starting to heat up again. In recent sessions, that relationship stood at about a 20% correlation compared with this summer’s 90% correlation.

As noted above, the economic numbers that likely will mean the most don’t come out until Friday, with that all-important jobs report. Earlier this week ADP’s National Employment account showed that 154,000 jobs were created last month, a bit below the 166,000 expected. Remember that the two reports are not always gleaned from the same sources and don’t always mesh well. Remember, too, that Fed Chair Janet Yellen has long expressed concern about wage growth and the plight of under-employed and detached workers.

When all was said and done, the S&P Index (SPX) recovered some of this week’s losses and appears to be heading back toward that 2,170 support level, though it may be a tough crawl until after Friday’s jobs numbers. Seven of the 10 SPX indexes moved higher yesterday.

West Texas Intermediate (CLX6) futures climbed just a whisper above the key $50.00 a barrel mark this morning for the first time since June. Will SPX turn around today with it?

S&P 500

FIGURE 1: SPX SNAPS 2-DAY DRAG

The S&P 500 (SPX), plotted here through Wednesday's close on the TD Ameritrade thinkorswim® platform, has been on a rocky road in recent sessions but appears to be headed back to its 2,170 support level. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

October’s Poor Reputation. Yes, the month has a bit of sordid rep, as five of the last 10 bear markets “violently bottomed in October, as did the near-bear of 2011,” says S&P Global Market’s Sam Stovall. And volatility? It’s a biggie in October, he says, based on average standard deviation of returns since 1945: It holds the dubious distinction of registering the highest and lowest one-month returns of +16.3% in 1974 and -21.8% in 1987, and scored highest in average daily trading volume.

On the plus side, the S&P 500 recorded its fifth-highest average monthly price return in October and saw a 61% frequency of a positive performance. “Unfortunately, during presidential election years, we find that old habits are hard to break, as the SPX posted the second-worst average monthly return,” Stovall said. “Rarely a dull month, the market will likely deliver either a trick or a treat.” Happy Halloween.

A Shop-Free Thanksgiving? Bucking the trend of stepping up promotions and opening stores for longer hours on Thanksgiving Day, the Mall of America, said no more yesterday. The nation’s largest shopping center, located outside Minneapolis, said it is closing down many of its operations on Thanksgiving, giving some 15,000 workers a family-day break in a bid to also “bring that special magic back to Black Friday,” Jill Renslow, MoA’s senior vice president of marketing and business development, told the Minneapolis-based StarTribune.

“We’ve been talking about this for months, looking at the numbers, looking at the pros and the cons,” Renslow said. “We’re excited to give this day back to our employees so they can celebrate with their families.”

Will it impact overall sales on the Black Friday weekend? Not likely, according to some retail analysts who say opening on Thanksgiving doesn’t lift overall sales, it just spreads the ca-chings out over more days. Will other shopping centers follow suit?

Wait, What? Kid-Free Zones on Planes? It’s not happening in the U.S. just yet, but moves to separate the sometimes-crying babies from passengers who want nothing more than to nap or work on a flight are in play abroad. Indian Airline IndieGo launched “quiet zones” earlier this month in an effort to solve customer complaints, particularly from business people—and you know who you are. There are areas in the plane that ban children ages 12 and under. Other airlines like Air Asia X and Scoot, a subsidiary of Singapore Airlines, have similar guidelines in place, according to MarketWatch.

It’s unclear whether U.S. airlines might ever adopt such rules, according to travel experts, who said the bad public relations (who wants to diss children?) may outweigh the good. And, of course, such a privilege to sit in kid-free zones wouldn’t come without a cost, though many experts said business clients are likely to pay up for such a perk, like they do for extra legroom or an aisle seat, not to mention first class.

The real question, however, might lie in whether the cost is worth it. Since when do babies keep their volume levels segregated to certain areas?

Good Trading,
JJ
@TDAJJKinahan

Economic Calendar

FIGURE 2: THIS WEEK'S ECONOMIC CALENDAR

Source: Briefing.com

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