- SPY stages afternoon rally to recover losses.
- Equity markets close risk positions ahead of the employment report.
- Bond markets continue to see some steepening further out on the curve.
Equity markets failed in the “drive for five” on Thursday as markets staged a late recovery to close in the green. The Nasdaq continues to underperform its index counterparts, however, in a rising rate environment.
Equities will tread water until today’s employment report, but it may be difficult for them to advance too much. The market is still unsure of whether the Fed will hike 75 basis points or not, but probabilities are rising. What seems likely is that only a very poor employment report will cause a shift in thinking. The bond markets are in charge currently, and yields are unlikely to fall too much unless the employment number is shockingly bad. So far recent data points suggest that is unlikely with jobless claims, JOLTS and ADP all reasonably as expected.
There should be some volatility but with a likely resumption of the current path of higher yields and lower equity valuations. The dollar has reached multi-decade highs overnight, and the effects of this will be felt by corporates in the following quarters. The effects will not be pretty and will hit profits hard. Reporting in constant currency is no use. Currencies are anything but constant. We are set up for some further pain ahead.
We remain in the bear setup with the perfect failure at the 200-day moving average still playing out. Thursday’s close took us back above $395 but only barely. The main pivot on the daily time frame is the $405 low from last Friday. Below here more losses are likely.
SPY daily chart
Zooming into the 30-minute chart below, we can see a break of $405 should move quickly to $413 as we have a volume gap between these two levels. We also have significant volume around $397, so this is our intraday swing pivot.
SPY daily chart
Read More: All eyes on employment report