- Much Stronger than Expected Jobs Number
- Consumers Keep Consuming
- Dropping Commodity Prices Could Ease Inflation
Heading into earnings, one got the feeling of gingerly walking across a frozen pond, hoping to not fall through. With another week in the books, it feels like we’ve largely managed to make it to the other side unscathed and walking with confidence. While the effects of a slowing economy and inflationary pressures have taken center stage, forward guidance has largely been better than expected, suggesting that perhaps inflation won’t become the economic drag many feared. However, today’s much better than expected jobs number could prove more important to markets than earnings.
Expectations were for 250K new jobs and an unemployment rate of 3.6%. The actual number came in significantly higher at 528K new jobs and an unemployment rate of 3.5%. That news immediately sent markets lower in premarket trading as many are waiting on a weakening jobs market as a sign for the Fed to turn less hawkish on interest rates.
In looking at companies where I’d really expect the effects of inflation to be prominent, sales have remained strong. Both Uber
Earlier this week I mentioned credit card spending remains strong. When taken in conjunction with people still ordering in food, I see some signs of optimism that consumers are less worried about inflation and a slowing economy than I would have expected just a month ago. The concern here is that we also see credit card debt at record levels. However, I think the major key to this is real estate. If real estate prices can continue holding, I believe spending will likely stay strong. On the other hand, real estate prices should fall, then I think we’ll see a change in spending habits.
Elsewhere in company news, yesterday, Tesla
It’s also worth mentioning the activity we saw this week in AMTD Digital. This stock really brings back memories of the GameStop
Another space I’m monitoring is crypto. Bitcoin
Along those same lines, volatility as measured by VIX is another indicator I continue watching closely. Trading just above 22 in premarket, I get the sense the market is waiting on something. Just what that something is remains anyone’s guess as is the direction we’ll head. While still trading at an elevated level, 22 is closer to the lower end of the recent range and my read is it’s just waiting to move one way or the other.
The last asset class I want to draw attention to is commodities. After skyrocketing earlier this year following Russia’s invasion of Ukraine, prices have come down significantly. Wheat, soybeans, corn and oil have been all down since the winter. While those falling prices aren’t showing up yet in end products purchased by consumers, it does imply an easing of inflation expectations.
Looking forward to next week, there are some big economic numbers on deck including CPI and Michigan Consumer Sentiment. There are also a number of companies reporting earnings; however, we’ve largely moved past the big name companies with potential to affect markets. I’ll be very curious to see how markets respond to CPI as that has become an even more important indicator after today’s super strong job number and one the Fed closely monitors with respect to interest rate decisions. Until then, have a great weekend!
tastytrade, inc. commentary for educational purposes only.