There’s no question that today is going to be a very “thin” day in the markets, so anything can happen as we move through the day...but there’s no question that the better-than-expected employment report has the stock market rallying strongly once again this morning. The bond market is not seeing the same kind of outsized move...as the yield on the 10yr note still stands at/near 0.7%. That’s a bit higher than it was earlier in the week, but it’s still well below the June highs. Also, gold is a bit lower, but the $3 decline is not material at all. In other words, the Treasury & gold markets are not reacting in a big way...or at least not anywhere near the same level that the stock market is reacting (with its 40 point gain in the S&P futures as we write).
Even though this divergence is very, very similar to what we saw in late January and early February...it does not mean that the stock market is going to roll-over immediately. Of course, the odds that they’ll roll-over to the same degree it did in late February and March are incredibly low...given the stimulus that is being added to the system is huge. However, we do have to realize that the stock market really hasn’t done anything over the last month. So as good as the bounce has been off of the lower-end of that range on the S&P 500, the rally has definitely lost some steam....and the Fed’s balance sheet has stopped growing. (No coincidence there.)
Therefore it is our opinion that the rally will continue to be a very narrow one...which means it will remain a fragile one...and leave it vulnerable to high levels of volatility. That’s a traders dream and an investor’s nightmare, but it’s something we’re going to have to live with for the rest of this year (and beyond).
Since most of today’s activity will take place in the first hour of trading in front of the long weekend, we’ll leave it there this morning. We will have a lot more in our weekend piece. Enjoy the long weekend....and Happy Birthday America. We have a lot of problems in this country, but I wouldn’t want to live anywhere else. At least here...we have the chance to fix it. I’d hate to be living in Hong Kong.
Matthew J. Maley
Chief Market Strategist
Miller Tabak + Co., LLC
Founder, The Maley Report
275 Grove St. Suite 2-400
Newton, MA 02466
Although the information contained in this report (not including disclosures contained herein) has been obtained from sources we believe to be reliable, the accuracy and completeness of such information and the opinions expressed herein cannot be guaranteed. This report is for informational purposes only and under no circumstances is it to be construed as an offer to sell, or a solicitation to buy, any security. Any recommendation contained in this report may not be appropriate for all investors. Trading options is not suitable for all investors and may involve risk of loss. Additional information is available upon request or by contacting us at Miller Tabak + Co., LLC, 200 Park Ave. Suite 1700, New York, NY 10166.