All Eyes On Jobs Report…

The chatter has increased lately as to when the Federal Reserve will raise interest rates from their historic lows. We may not need to wait much longer to get that answer. Although it is a holiday weekend, the August jobs report will be released tomorrow and the pundits are suggesting that if the economy added more than 200,000 jobs in August, the Federal Reserve will raise rates this month. From my view a quarter point rate hike here in September is no big deal. I think the markets will have a muted reaction. However, if this is the beginning of a consistent pattern then this becomes an entirely different discussion. I do not expect that the Fed will be too aggressive with future rate hikes and of course the economic data will play a role in those decisions.

So what about the markets? We are coming into a seasonality that is typically a weaker time for stocks. What’s more, the markets will also begin to focus on the presidential election and the polls associated with it. That said, I expect an increase in volatility as we head into the fall. There are other catalysts that could weigh in on stocks such as potential changes in global monetary policies and Q3 earnings reporting season in October. The key indices continue to demonstrate strength with the S&P 500 (see chart below) being supported by its 50-day moving average click here, the Dow Jones Industrial Average (see chart below) is within a couple percentage points of its all-time highs, and both the Nasdaq (chart, click here) and the small-cap Russell 2000 (chart, click here) are trading right around their 20-day moving averages. So as of yet, stocks do not appear to be too concerned with the upcoming market seasonality and other potential catalysts that could play a role in interrupting the uptrend we have been in.

Both Paula and I wish everyone a very safe and happy Labor Day weekend 🙂


S&P chart george mahfouz jr

dow jones chart george mahfouz jr

A bull stampede!

Stocks are on a rampage with the Dow Jones Industrial Average (chart) surpassing and closing above the 14,000 mark for the first time in over five years. For the week, the Dow Jones Industrial Average (chart) finished up 0.89% the Nasdaq (chart) +0.93%, the S&P 500 (chart) +0.68% and the small-cap the Russell 2000 (chart) closed the week up 0.66%. For the month of January both the Dow Jones Industrial Average and the S&P 500 had its best showing in decades.

So why so much bullishness? Well for starters, before the market opened today the non-farm payroll number came out and 157,000 new jobs were added to the economy. Good, right? Not so fast. The unemployment rate actually ticked up to 7.9% in January and furthermore, the economy needs to add at least 250,000 new jobs per month in order to make a meaningful dent in the unemployment rate . So you ask, “how can this be good for stocks?” Here is the oxymoron. As long as the economic numbers remain tepid, the federal reserve will continue its stimulus program(s) which in turn bodes very well for stocks. A zero to a quarter percent interest rate environment forces money off of the sidelines that is seeking a respectable yield. This especially rings true for fund managers and institutional money managers who really must produce higher than average returns to appease their investors.

For me personally this type of market environment is very difficult to navigate. On one hand you have the fed ready to expand their balance sheet which in turn fuels stocks, and on the other hand you have a weak economy which should translate to lower equity prices. Instead, this market is making multi-year highs across the board. Without question stocks are way overbought and are due for a healthy pullback. If you dare to short this market in attempt to call a short term top, make sure you have explicit protective stops in place. The same discipline should also be honored if you open any new long positions. Going forward, I am expecting some type of pullback which would probably be met with noticeable support at least in the short term. Good luck to all.

Have a great weekend 🙂