Red-Hot Job Market Spells Trouble for Stocks

Aug 07, 2022 | How does the latest job report impact the stock market?

Red-hot Job Market Spells Trouble for Stocks

Last week was a volatile one for stocks, with key data around inflation, and job growth, both being released. While inflation continues to stay high, investors were left to assess the impact of an absolutely stellar report regarding job growth.

The labor market added 528,000 jobs in July. Absolutely smashing predictions that called for around 250,000 new jobs. Unsurprisingly, this meant unemployment also ticketed lower. Unemployment rate dropped down to 3.5%, also beating expectations.

We also saw growth in wages continue to tick higher. Up 0.5% for the month and up over 5.3% from a year-ago. While higher wages might sound great on paper, this can be directly attributed to inflation. With just about everything being more expensive, rises wages may signal that high inflation is still a very real problem.

With all this new information, traders are left to wonder, how will the Fed react to a very strong labor market. Does this point to more rate hikes and additional fiscal tightening?  

 

Unemployment Hits Pre-Pandemic Levels

Unemployment has continued to tick lower in recent quarters, mostly as those jobs lost to the pandemic have been slowing coming back. Many of the industries most affected by the pandemic are now the continuously leading the job hiring.

Industries like, food and beverage, hospitality, travel, and entertainment. Though the hospitality industry is still 1.2M workers below their pre-pandemic levels. We saw a sharp rise in job growth into the retail sector, this despite warnings from major players such as Target and Wal-Mart that consumer spending habits are shifting.

The unemployment rate is now back to its pre-pandemic level, tied for the lowest since 1969. As we previously noted, we also saw hourly wage growth jump higher. Consumer prices are rising at their fastest rate since the 1980s, and this is just another example of how.

With the talks of a recession intensifying, are we in one already? Is one on the way? This report around job growth should be viewed favorably when assessing the current condition of our economy. More people are going back to work. Unemployment is trickling lower. Wages are moving up. But could this be another prime example when there’s good news for the economy, it’s actually bad news for stocks?

 

Markets React

Stocks opened last Friday (one day after the jobs report) in red. A clear sign that good economic news may not be so positive for stocks. Investors are clearly concerned that as hiring continues to stay extremely high, the Fed will once again be incentivized to step in and apply more pressure through interest rate hikes.

The consensus coming into this report was that job growth should begin slowing due to the rate hikes applied by the Fed. While we’ve seen big technology companies talk about how they plan to slow hiring in future quarters, our current job market remains red-hot.  

What it Means: Anyone hoping we had moved past the worst of the rate hikes got a quick reminder that we aren’t out of the woods yet. Despite all of the major indexes recording their best months in two years, an unexpected eruption of new jobs has the market taking a more cautionary stance this week.

Once again, all eyes will be watching the Fed to see if and how they react to the positive economic data. Last weeks job reports are one of the key datapoints the Fed will use to assess its next round of rate hikes. It looks like traders have already begun preparing for a tougher stance from the Fed going forward.

Weekly Swing Trades

PNRG (Prime Energy)

October 2, 2022

Entry Price:

80.62

Stop Price:

76.85

Target Price:

88.04

Time Frame:

1 Week Hold

Expecting a short-term bump after a recent OPEC+ announcement regarding the a supply constraint to oil. The constraint would result in ~1M less barrels of oil per day, which should cause a price jump. Low RSI and bouncing off our 250 day moving average, both hallmarks of a good swing trade.

DV (Doubleverify)

October 2, 2022

Entry Price:

27.75

Stop Price:

26.75

Target Price:

29.00

Time Frame:

3 Week Hold

Using our moving averages heavily on this swing trade, look for continued strength as we try to notch out a 6-8% gain. Specifically, we are taking advantage of of a recent cross over in the 50 day moving average. Last week closed down, so wait for confirmation of a reversal.

State of Emergency over Monkeypox

Last week, the Biden Administration declared a health emergency over the growing Monkeypox outbreak. As we’ve seen in the past with Covid, this declaration will allow the federal government to amp up its response to virus without the usual regulatory barriers.

Health and Human Services (HHS) also declared they would be ‘taking their responses to the next level’ when dealing with this virus.

The country has reported more than 6,600 cases of the virus, which causes fever, aches, bumps, and sores. Right now, it seems to be passed on through skin-to-skin contact. Unlike Covid, which we all know as an airborne pathogen.

Biden officials have been under a growing level of scrutiny for their slow response time, in acting for the new virus. Going forward, with this new declaration, the government will be able to expedite data sharing so we can have comprehensive and timely data available for the public.

What it Means: So far, the stock market has not seemed too concerned with this ongoing health scare. But we’ve all lived through Covid, and we know how quickly things can change. Currently, over 25,000 cases have been reported globally. We’ll be watching closely to see how this impacts the fear index, and if it will add another level of uncertainty to the stock market.

 

Meta Platforms Confirms NFT Rollout

Following a series of testing phases, NFT integrations are now live on Instagram across 100 countries. This new move will be done as part of a new integration with Coinbase, the world's largest crypto exchange.

After a successful test launch in May, IG users will now be able to showcase their art through NFTs on the Meta owned platform. Mark Zuckerberg CEO of Meta also confirmed plans to eventually integrate NFTs on the Facebook network as well.

Shares of Meta have seen little traction based on the news. Coinbase however, has seen a significant jump despite still being well below its one-year highs.

What it Means: When Facebook pivoted from a social network to the future of the metaverse, they made it very clear they were going to be rolling out different products and completely overhauling their operations. In a newsletter from last month, we reported that overall trading volume for NFTs has been depressed as investors have been shedding risk from their portfolios. Meta clearly sees this as the right time to incorporate NFTs into their platforms. 

Upcoming Economic Reports

Market Performance- Week of 09.25.2022

Recent Stories

Global Risk Continues to Rise

Oct 02, 2022 | A strong dollar keeps all swing traders on edge with market headwinds stronger than ever ...read more

FedEx Says Recession is Coming

Sep 25, 2022 | What FedEx said about a potential recession and how can Swing Traders make money off it ...read more

Dollar Weakness Gives Stocks a Rebound

Sep 11, 2022 | Stocks have a slight rebound as the dollar comes down, but what does it mean going forward? ...read more

Bond Market Signals More Trouble to Come

Sep 04, 2022 | What is the Bond Market Telling Us About the Market? ...read more

Weekly Watchlists

Community Access

The whole is greater than the sum of its parts”- Aristotle

Our Stock Trading Club is home to like-minded Investors, Bankers, Accountants, Financial Advisors, Economists, Finance Majors, Small Business Owners & aspiring Entrepreneurs who network with each other, learn and discuss stocks, and update each other on emerging stock market news every single day.

Especially for new investors, having a collaborative learning environment is crucial for long term success. In The Swing Trading Club there are NO paywalls or segmented discussions. Each and every member will have access to 500+ like-minded investors just a keyboard’s length away. So after signing up, please introduce yourself.

Weekly Review

Market Performance- Week of 09.25.2022

Recent Winners

SBUX (Starbucks)

SBUX (Starbucks)

Entry Price:

85.00

September 11, 2022

Price at High:

89.90

Return for Members:

5.76%

Timeline:

2 Month Hold

Strong momentum over the last few weeks. Watch for a mean reversion, but if moving averages stay consistent look for an early play to open the week.

PNRG (Prime Energy Resources)

PNRG (Prime Energy Resources)

Entry Price:

83.20

September 4, 2022

Price at High:

100.00

Return for Members:

20.19%

Timeline:

3 Week Hold

PNRG had a drawdown to historical levels of support (around the 100 day moving average). Looking to make an entry in the coming days as we also have macro tailwinds with the energy crisis in Europe.

PYPL (Paypal)

PYPL (Paypal)

Entry Price:

87.00

August 28, 2022

Price at High:

103.00

Return for Members:

18.39%

Timeline:

4 Week Hold

Playing off the dip in June, we're starting to see momentum as the 50MA is crossing over the long-term averages. Look to for momentum to continue and an early entry on Monday.

Recent Watchlist Winners

Join the Club