Wednesday's Market Minute: Here We Go Again

Welp, there it is: “Fed pivot” was trending on Twitter yesterday. Here we go again. A few economic data points come in below expectations, and the stock market posts its biggest 2-day rally since March 2020. The Narrative That Never Ends.

Bulls rooting for a slowdown in the economy were excited to see PMI and ISM back down to 50 on Monday, and elated by a million job openings lost over the past month. It may seem twisted, but it’s standard operating procedure at this point: the worse the data is, the better the stock market does. Everything from tech to travel stocks surged the past 48 hours, and breadth reached some impressive levels. A Bloomberg index of meme stocks posted the best day since May.

The decline in job openings does stand out as a uniquely disappointing employment figure in a string of recent beats, so as long as the market is dependent on Federal Reserve action, it is the type of development that could be bullish in the short-term. But there are still 10 million jobs available, and we know Jay Powell needs to see consecutive data points to be convinced. Friday’s payrolls report is expected to show another 250,000 jobs added, an impressive figure that should keep the Fed on pace.

More convincing for bulls right now is the simple short-term technical setup across assets that’s been aching for a reversal higher. Technician Helene Meisler first put this on our radar late last month, that the downside in stocks was intensifying at a rate that would likely be unsustainable coming into this month. Sure enough, the market bounces right after cutting to a new low. The dollar and yields were trending into too-hot territory, and VIX near 35 going into the weekend was just unlikely to hold without some new calamity. As much as Twitter traders tried to make Credit Suisse that capitulatory shock, it didn’t take. And now we rally.

There’s another week until earnings, and there’s not much new to hear from Fed speakers who’ve been breathlessly hawkish the past month. Bonds and the dollar got so hot that there is plenty of room on the charts for a retracement that could open a window of opportunity for bulls without changing the bigger picture. The Fed is going to require a lot more than a single week’s worth of data to “pivot.” Enjoy the opening, bulls, but don’t make the same mistake yet again.

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