Equity Markets Rocket to Fresh Highs but Jobs Report Wiffs – Weekly Stock Market Update
Equity markets continued their bullish rip last week, with 4 of 5 of the weekdays closing on fresh all time highs.
The total streak ended at 7 consecutive bullish days before Friday’s weaker close after disappointing jobs data in the non-farm payrolls report.
Traders were expecting 88k new jobs in September. The actual number was -33k, a big miss while the unemployment rate declined from 4.4% to 4.2%.
Leading up to the jobs report however, we had a week full of very positive economic data, helping markets hold their bullish momentum.
The SP500 managed to rally over 1.0% last week.
Here is an overview of last week’s price action on a 5 minute chart:
SP500 and US Dollar Rally, While Oil Prices Crater on Hurricane Nate Fears
The weekly scorecard for assets is as follows:
- SP500 rallied 1.10%, leading the way for the week
- Silver rallied 0.84%, diverging from gold
- US Dollar up 0.82%
- Gold dropped 0.43% (but we expect it to rally once China Golden Week is over, read more here)
- Oil got hammered 4.36% as hurricane Nate scared the market, but it missed this weekend and didn’t cause nearly the damage it was expected to – expect a relief rally on oil as of the 6PM EST open.
All Equity Markets Rally to Fresh Highs, Moving in Sync
This past week was very bullish for equities, with all major US markets trading to fresh all time highs.
SP500, DOW industrials, Nasdaq and even the Russell 2000 small cap index.
This bullish move in sync across all markets made the move more significant for the long side.
Federal Reserve Speakers Confirm Another Rate Hike is Likely in December
Throughout the week we heard a lot of Federal Reserve speakers confirming the hawkish tone and stating they are expecting another rate hike in December.
The hawkish tone drove the probability of a rate hike in December 13th to 90.6%. There is currently a 1.4% chance of rate hike of at least 0.50%, while an overwhelming 89.2% of market participants expect just 0.25% hike.
Currently, there is only a 9.4% chance of no rate hikes.
The interest rate hike odds have helped push the US dollar higher this week.
What to Watch Next Week in the Stock Market – North Korea and US Tensions Flare
Over the weekend we have seen an escalation in the North Korea and US rhetoric, as Donald Trump tweeted “sorry but only one thing will work”. This language is dangerous and suggests that the time frame for diplomatic solutions may have come to a close.
Under this scenario, we could be getting very close to seeing military action from the US against North Korea. This can prompt Kim Jong Un to respond with a nuclear strike, which is estimated to have the ability to kill between 2 million and 8 million people in South Korea, Japan and surrounding areas.
This event may spook traders and cause a sharp sell-off from all time highs if it escalates. There is a well known fact among professional traders that amateurs need to know as well – markets fall the fastest and hardest from all time highs.
Economic Data for the Upcoming Week – Fed Meeting Minutes, Central Bank Speakers and US Inflation Data
Monday is a Columbus Day in the United States, and while markets will be open the banks are closed. Expect trading volume to be much lower. Trade carefully.
Wednesday we see the latest Fed Meeting Minutes, where traders will be looking for clues on rate hike odds for December and 2018, as well as the balance sheet normalization.
Thursday we’ll see a few high impact updates including weekly unemployment claims, crude oil inventories and ECB’s Mario Draghi. Watch the US dollar and Euro during the morning hours.
On Friday, we’ll end the week with a very important look at inflation data with the CPI release. Inflation has been a challenge for the Federal Reserve, and this release is front and center for traders. Also, we will see an update on monthly retail sales.
That’s it for this week’s stock market update.
We think this week we’ll see a pause in the rally and a rebound in oil and gold prices.
Good luck and good trading.
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