All indexes we follow closed down today: S&P 500 5,695.94 down -0.96%, the NASDAQ down 41,954.24 -1.18%, and the Russell 2000 (2,193 -0.89%). What a reversal in thinking from Friday’s big rally on a stronger jobs report.
I will delve into today’s reversal, how many big board traders think and trade the real reason, in my opinion, what is occurring and why.
Let’s start with what everyone is hearing on the financial news station. The headlines say there is a strong job market because of the big jobs report and the wage increase (4.1%). Yes, the job market is steady! But it is not tight. A lot of the wage increases have occurred from settled labor contracts. Union labor contracts increased 6.5% over the previous year, while nonunion contracts increased 3.8%. So let’s put that rumor to bed now you know where the wage increase has come from.
Second, the big news headlines on Financial TV are saying now the Federal Reserve might not cut next meeting because of the blowout jobs report. While it’s a possibility, I believe he will cut. THIS IS RIGHT BEFORE THE ELECTION, and who puts out the jobs and wages report? The sitting administration does. Don’t be surprised if those numbers are revised downward in the future. I am not saying it is going to happen but this is the world we live in.
We have to remember traders are not market analysts and not economists. They listen to the news and they get emotional. We are right before an election, and it has been painfully obvious, that the market has moved higher without true buying commitment. The reason we have stayed at these levels is simple. The seller has been absent. Remember in July when there was a sale? It took the NASDAQ just over 3 weeks to go over 2,200 points. I don’t think something that severe is around the corner. But big Institutional money will not commit to buying until either the polls show a clear winner for the White House or the election is in the rearview mirror. The reason I keep saying buying is absent?
There is 6 trillion dollars sitting in mutual fund cash positions!
The VIX index is beginning to climb, often referred to as the “Fear Index” or “Fear Gauge.” It measures the market’s expectation of volatility over the next 30 days based on the prices of S&P 500 index options. Essentially, it provides a real-time, forward-looking measure of expected market volatility. So expect volatility. Prices will most likely fall in the near term.
But remember, for now, this bull market rally is still in place. Another correction, however big or small, is due. A bull market climbs a wall of worry. But the earnings outlook, GDP for the 3rd quarter, and the future interest rate environment all look good. And 6 trillion dollars waiting to be invested add fuel to the fire. These are often driving forces of a bull market. Be patient!
Upstart
Upstart earnings outlook was recently raised. But if the market takes a hit in the short term, as I expect, Upstart will not be immune. But I have stated numerous times I believe they have hit the bottom of their business cycle. Lower interest rates add a big tailwind to earnings and revenue.