The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
September jitters
S&P 500 futures were flat at 3 AM and then Europe opened and traded down and took our futures down in sympathy. The index opened down about 85 points, recovered a bit, fell to down 100 at noon, and then recovered significantly in the afternoon. Capital flow was 107% today, suggesting the summer apathy is behind us. The Treasury curve steepened a bit, perhaps reflecting an appeals court decision striking down the President’s tariffs.
September is well known to be the seasonally worst month for US stocks. Given that plus Friday’s drop after Thursday’s all-time highs and you have a compelling case for active equity players to sell first, think second, and plan on jumping back in later.
If we get a couple of positive datapoints or developments, the upward chase will be potent. We have to get them first though. In the meantime, there are a lot of gains on the table that investors appear to be locking in. Are we at the start of a nasty stretch or is this yet another quick and shallow dip?
The pattern of the market over the last couple of months has been one of caution ahead of data/policy, and then bullish reaction thereafter. The market has not front-run data/policy since Liberation Day. Assuming that markets will stay the course, the next datapoint that could/should set prices into motion is August nonfarm payrolls data (+75k est vs +73k prior), releasing Friday morning.
Last week I didn’t think anything but an outlier would change market psychology. I believe it still today. I have not seen indicative data to suggest that payrolls will be surprising. Additionally, we haven’t had any big headlines or geopolitical events in August that could have rattled the US labor market. My point is that all the economic data has been smooth and stable for a while and there’s been no out-of-left-field shock that changed the jobs space faster than the data could reflect.
I therefore think that the numbers will print without drama. And this will allow all the worries from Friday and today, and maybe the next couple of days, to vanish.
The big picture of the economy remains unaltered from last week, month, and quarter. And that picture is rosy.
September seasonality fears may have popped up lately but they will not last if the data continues to paint a positive picture.
I think dip-buyers are licking their chops but most are sitting on their hands.
We’ll get the verdict on Friday. Maybe some other data before then will give us a hint though.
See you tomorrow.
-Mike
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