The surprises keep coming when it comes to U.S. job growth. The continued expansion is helping to propel all of the major US indices to fresh, new, all-time highs. Based on how the jobs reports have gone over the last few months the surprise caught most trades off guard. The S&P futures (ESU16:CME) was trading higher before the report, but after the employment number was released, the S&P popped again.
Backed by fresh buying in biotech and technology shares the Nasdaq have been closing on its old highs set back in the 1999-2000 tech bubble. The Nasdaq futures hit a new milestone after the U.S. Labor Department reported that non-farm payrolls beat out the consensus of 183,000 job, and reported 255,000 jobs in July, 73,000 jobs above expectations.
Nasdaq KBW Bank Index
Most readers we talk to said they thought the jobs number was a good sign for the U.S. economy, but not enough for the Fed to raise interest rates in the next meeting, and possibly not at all for the rest of 2016. We have maintained that there will be no rate hikes in 2016, and that idea was put in stone when the Bank of England lowered rates and added more quantitative easing last week.
While the Dow and S&P have been trading above their old highs, the Nasdaq has been going up for weeks, and finally breached its all time high. Also helping the S&P futures on Friday was the S&P 500 financial sector, which closed up +1.6%, its first higher close on the year. According to Bespoke Investment Group the the S&P financial sector tends to ‘outperform’ after a strong jobs report, rising +0.6% on average after positive surprises over the last two years. The push left the financial up +0.50% marking for the first time in 2016 that all 10 S&P sectors are positive on the year.
Jobs Jobs Jobs
The positive jobs numbers helped push shares of Bank of America (BOA) and Citigroup (C) up more that +3%, while Goldman Sachs (GS), JPMorgan (JPM) and Morgan Stanley (MS) all jumped more than 2%. All of these factors helped the Nasdaq KBW Bank Index of 24 large lenders trade up a whopping +3.2% for the day. It’s been a big turnaround for the S&P financials that were down as much -23% by mid-February.
While I still do not think the fed will raise rates this year, Friday’s positive jobs report helped push the CBOT’s fed funds futures up to a 45% chance of a rate hike by year end. I am going to stick to my guns that the the Brits lowering rates and the U.S. election will make it hard to do even if the data continues to come in positive. Lets face it, 1% GDP growth over the last 6 months is not slowing down the index markets, and I do not believe that even if the fed does hike rates that the markets will turn back down for very long.
Is the S&P going to 2200.00? I said last Thursday that a close above 2165-2166 could mean a quick move up to 2190.00, and last night the S&P traded up to 2183.00 on Globex, just 7 handles off my call. I also said the after crude oil futures traded down thru $40.00 that the next $3.00 would be higher. I recently revised that call to the next $4.00 would be up, and as of 7:10 am CT this morning, the CLQ traded up to $42.67.
It’s all about the bus getting too full…
Overnight, global equity markets continued their bid higher even after weak data from China. The S&P 500 futures traded in a tight three handle sideways range after opening at 2176.00. On the European open the ESU began to rally up to 2183 before trading back to 2180 at it’s most recent print. The price action has been more of the same as Globex volume remains low having hit 100k Sep mini’s around 6:10 am cst this morning.
Heading into today’s cash session the calendar is light as the S&P has now extended its range higher. From here it appears the index is likely to create another floor and ceiling to trade between, and today’s range will be important in determining if the markets are to continue to trade a range while favoring the bid side. As long as buyers can hold the 2170 area, and ensure that its converted from support to resistance, then 2200 appears to be the target.
Global Rally
In Asia, 11 out of 11 markets closed higher (Nikkei +2.44%), and in Europe 10 out of 12 markets are trading higher this morning (DAX +0.09%). This week’s economic calendar included 21 reports and 11 Treasury auctions or announcements. Today’s economic calendar includes Labor Market Conditions Index, a 4-Week Bill Announcement, a 3-Month Bill Auction, a 6-Month Bill Auction, and TD Ameritrade IMX.
S&P 2200.00 ON TAP
Our view: The US economy is on a roll but we still do not think the fed can raise interest rates until next year. The BOE and the U.S. election should hamper that process. Yes, the S&P is going up to 2200.00 and beyond, but we can’t start talking S&P 2300.00 or 2400.00 until we pass through the next big figure. Our view, sell the early rallies and buy weakness.
As always, please use protective buy and sell stops when trading futures and options.
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- In Asia 11 out of 11 markets closed higher: Shanghai Comp +0.93%, Hang Seng +1.57%, Nikkei +2.44%
- In Europe 10 out of 12 markets are trading higher: CAC +0.47%, DAX +0.98%, FTSE -0.03% at 6:30am ET
- Fair Value: S&P -4.45, NASDAQ -3.60, Dow -63.42
- Total Volume: 1.37m ESU and 4.2k SPU traded
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