U.S. stocks rallied on Thursday, with all 11 S&P 500 sectors ending the day in positive territory. However, the rally is taking an “Apple” interlude after shares of the world’s largest company slid 3.5% in extended trading following its earnings report. The market is also likely to pause ahead of the NFP.
However, with U.S. Treasury yields on the downside and the market being the forward-looking machine that it is, the concentration risk damage was nowhere near as expected, especially as investors enjoyed the latest central bank dove fest along with other strong earnings releases from surprising places. Indeed, the market’s dovish interpretation of the Fed is helping to fuel the rally in some of the market’s less favored corners.
Asian equities are coat-tailing the bullish momentum in US equities and long-dated Treasuries as investors read in the tea leaves the strong possibility that the Federal Reserve has completed its rate hike cycle.
Thursday’s US macro data was dovish. At least that’s how the market should interpret it. As usual, there’s no guarantee that traders will continue to see it that way, as Friday’s NFP report will decide the macro week.
As the markets move into the Goldilocks zone, the upcoming payrolls report could be crucial, as too hot or too cold could swing the pendulum to more “watch and wait” to see how the Fed responds, or worse, more imminent recession fears if the print misses by a wide margin. But coming in near or on the breadth of economists’ guesses would probably hit a high note for investors.
With a terribly weak ISM report still in the market’s headlights, investors certainly don’t want to navigate an NFP clunker.
Oil prices inched higher in early Friday trading, with West Texas Intermediate, the U.S. benchmark, trading above $82 after a 2.5% gain on Thursday. In addition to the risk-on bounce and falling Venezuelan exports, we believe some pre-weekend short covering drove the rally in oil markets. Gold was flat and bitcoin was little changed after Sam Bankman-Friend was found guilty in a criminal fraud case.
As for gold, when Gundlach, Gross and Druckenmiller are all on the same page, “RATES SHOULD FALL AS THE US MOVES INTO RECESSION”, historically this trio singing from the same song sheet has been a solid signal. Look at the ISM data; those are dark clouds in the manufacturing sector and will get all kinds of attention from the macro bear crowd, probably on a delayed basis once some bad data comes down the pipe, maybe even tonight’s NFP. I think the only concern, since bond yields are still pretty strong and will be for a while, is an unlikely sooner than expected easing of tensions in the Middle East.