After A Boom On Employment Can Stocks Carry The Momentum?

Key Takeaways

• 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
UBER
and Lyft
LYFT
reported solid outlooks despite rising fuel costs. DoorDash
DASH
, the food delivery service, reported good numbers last night and offered an upbeat outlook. That echoed comments from Uber’s food delivery arm, Uber Eats. While DoorDash did say customers are ordering fewer items per order, customer demand remained strong despite rising costs of menu items.

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, should real estate prices fall, then I think we’ll see a change in spending habits.

Elsewhere in company news, yesterday, Tesla
TSLA
shareholders approved a 3-1 stock split. Although no date was given for the split, this will be the stock’s second split since 2020. Back then, Tesla split 5-1.

It’s also worth mentioning the activity we saw this week in AMTD Digital. This stock really brings back memories of the GameStop
GME
meme frenzy. Having just gone public last month, it closed at just over $16 on its first day of trading. Earlier in the week, the stock reached a high of $2555. Moves like this are what I consider lottery ticket type moves and while they help foster engagement, they are not the norm. It is okay to play in these stocks, but keep in mind, lottery ticket type speculation is not investing.

Another space I’m monitoring is crypto. Bitcoin
BTC
is currently trading near $23K after falling well below$18K back in June. Bitcoin is an asset I largely view as a confidence gauge. Rising prices there suggest to me investor engagement is increasing, at least in the short term. I’m not sure that engagement is translating into a need by investors to have true commitment to own stocks just yet, but the increase in bitcoin along with the rally in equities is something to keep an eye on.

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 are 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.