More Chop Ahead

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Today’s employment report is unlikely to change Fed policy anytime soon. (Photo by ANDREW … [+] CABALLERO-REYNOLDS / AFP) (Photo by ANDREW CABALLERO-REYNOLDS/AFP via Getty Images)

AFP via Getty Images

Key Takeaways

  • Employment Report Stronger Than Expected
  • Oil Prices Creeping Higher
  • VIX Signaling Markets on Edge

Despite two consecutive down days, stocks are headed into Friday up on the week. Markets are looking to break three consecutive weeks of losses but much of that could hinge on today’s employment report.

If you’re waiting on economic data, the monthly employment report is typically considered the most important of them all. But I’m going to add a caveat to that. When Fed policy is undecided, meaning we hear statements about monitoring the current situation and policy will then be adjusted accordingly, the employment report is arguably the most salient. However, we’re in a period right now where policy is already decided. Times like these are pretty unusual though. Therefore, while today’s report might move the market, I really don’t feel as though it has the importance, with respect to Fed policy, as it normally does. Instead, I think everything right now is more about inflation and reports like CPI are the ones to watch. But today’s report of 263K new jobs created and an unemployment rate of 3.5% are both better than expected numbers.

Elsewhere, commodity prices are up in premarket trading with oil trading near $90/barrel. The uptick in oil prices is making its way down to consumers at the gas station where the national average for a gallon of gas has started ticking higher and now stands at $3.83. That increase in price is reversing what had been about 100 down days.

Overseas, the Bank of England announced last week a bond buying program in efforts to stop what had been a cratering market which sent interest rates higher. After making purchases at the end of last week and early this week, the BOE hasn’t made purchases in the past couple days. Although yields had come down some in the wake of their announcement, they have since reversed course and begun to once again head higher. I bring this up because we are very much in a world where central banks are trying to curb inflation without causing too much disruption to markets. I don’t recall a period exactly like this in my career and it will be interesting to see how all this unfolds.

Back home, Advanced Micro Devices
cut their earnings forecast yesterday and Peloton announced they would be laying off 12% of their workforce. Both those items add to what’s been a trending narrative of weaker earnings outlooks and continued layoffs. With earnings season really beginning in earnest later this month, I’ll be paying particularly close attention to any pre warnings.

Finally, I want to again bring attention to the level of the VIX. At the current level near 30, markets are forecasting daily ranges of about 2%. We have seen this week what that can look like to the upside. I would avoid being tempted into complacency with respect to large moves being confined to the upside. This market is forecasting chop but markets do not forecast direction. Exaggerated moves are equal opportunist by nature.

tastytrade, Inc. commentary for educational purposes only.