So, if there is progress in the labor market softening, it is tough to find, and the pace at which wage growth is coming down is way too slow to meet the Fed’s 2% inflation target anytime soon. The Fed needs wage growth closer to 3%, which is still over 4%. And while this job data alone isn’t likely enough to raise rates in November, it just pushes out the timeline for rates to stay higher.
But we can also see that as the day went on, the gap between stock and bond prices separated, and the separation was likely due to the implied volatility crush that we see after a typical event, as event risk ebbs.crush started, pushing stock prices higher. So the rally in the equity market had more to do with short-covering and profit-taking, volatility crushes, and mechanics than it had to do with some view that we are on a “golden path” to an “immaculate soft-landing.
Unless the S&P 500 gaps over the 4,320 level on Monday, I think the 4,320 level holds, and the index trades lower and gives back much of the gains we saw on Friday, which probably means we get another retest of 4,200 at some point this week. If, for some reason, we do gap higher, there is still that gap at 4,400 that hangs out and is likely to be the next central resistance zone for the index.
Again, the NDX must gap over that trend line on Monday morning. Otherwise, we see the index back down and test the 14,270 area. It seems plausible if we do a gap higher than a rally to around 15,250.This week will deliver a make-or-break moment for Fed rate hike expectations. The main event will be the September inflation report.. Expectations are for both headline and core...
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