Market Briefing For Monday, Oct 7

A runaway economy is not implied by unexpectedly strong Jobs numbers; at least on the surface. (Presumption might center on ‘downward revisions’ as we’ve seen before, while we of course don’t want to see that for workers.) In a sense this news might keep a lid (for now) on how much Fed easing is likely.At the same time the economy is holding up better than feared (presumably I again have to add); and it’s sort of a better environment for cyclicals. There is, however, much else to consider just now; also presuming it’s still ‘Rocktober’.
 
You’re unlikely to get ‘much’ more out of the S&P; but the broadening certainly could expand gains for those smaller-stocks that look promisingly positive into 2025. Broadening, rather than rotation, might be key to kicking all that in gear; at the same time as it’s difficult in the 4th Quarter, given tax-sale competition.Value is in the smaller stocks, and that’s already part of the equation shuffling a few of them higher and then lower and then rinse and repeat trading cycles. Accumulation on dips of a number of these as some engage in tax-loss sales.
 
A clue to this happening is ‘equal-weight’ outperforming a ‘cap-weight’ view of the S&P, and that probably will become the case for Nasdaq as well. So less chance of a recession helps such stocks; almost regardless of the Fed ‘pace’ of rate cuts; especially for stocks with 2025 funding already locked in-place.Can’t look for a big ‘run’ in growth stocks yet; but can see the monetary and a few economic forces that should contribute to that for the first half of next year and especially if ‘major big-cap techs’ continued to be viewed as fully priced. I do not care if the S&P overall (or big-caps) shows ‘just’ a 15% growth forecast while the percentages on some smaller stocks could be significantly greater.
 
Market X-ray: notice I didn’t mention the ‘war(s)’ tonight; not yet anyway. We are all aware of where things stand (as far as the public knows) and await the retaliation by Israel, perhaps even this weekend, which represents one year of anguish since the hostage-taking and murders by Hamas on October 7th.It’s between the Jewish holidays, and I suppose logical to recognize that date as time to take action, with (in theory) it completed before Yom Kippur. But the wackos running Iran probably figured that out, so maybe timing needs to vary. On an immediate basis, reactions to this situation take precedent, but won’t of course be likely to derail future economic and market expectations. If anything a serious drubbing would create ‘entry not exit’ opportunities in many stocks.Not much resolved, other than a number of economic data-points clicked-off in favorable fashion, at least on the surface. A reservoir of caution remains an appropriate stance, not bearish, just realizing macro economic improvements, ‘if accurate’, tell more about early 2025, than getting through season patterns.If one thinks the thoughts of domestic politics or the pending Middle East war expansion drums beating are influencing my caution here; absolutely indeed. At the same time I’ve used periodic declines recently to enter a couple stocks but not significantly, and with a modicum of patience believed needed. I won’t complain if things advance sooner than would be seasonally logical; but don’t want to overextend commitments, while also not shorting this market either.
 
As for the week ahead… speculation is not particularly helpful now. We get CPI and PPI in the week ahead; and ‘in theory’ it shouldn’t matter much, with a rate-cutting cycle ongoing. Aha, but is that the case? The Fed must have seen something to generate the (expected) rate cut weeks ago; but does what was reported Friday suggest the Fed make a ‘mistake’, or that is that why Fed Chairman Powell just the other day remarked they ‘weren’t stuck’ on policy.And of course the earnings ‘stream’ starts; but again that’s not going to sway much; aside debates about the multiples, which for big stocks are not ‘cheap’. It’s more pertinent what we get from smaller companies, especially guidance.Above all; do we awake Monday to an Israeli counterattack on Iran? And will it be Oil facilities or merely military targets? Either one takes Oil up; the former it seems more than the latter. But if it’s Oil and it’s up 10/bbl; this Friday’s Jobs celebration rally will look like a short-covering respite within ongoing volatility; even if the actual economic implications are not so bad. Again not sure I trust the number reported today; but obviously hope they avoid downward revision.
 
Bottom-line: unadulterated seemingly good news Friday; with the Port strike on hiatus (well Los Angeles union trying to ‘bite’ into that); the Jobs number solid (unless, as sometimes, gets revise them downwards later, or glosses it over).It’s going to be hard to extend big-cap equities for now; most have abnormally high ‘multiples’, and probably can’t deliver sufficiently higher earnings outlooks to justify much more. It’s the smaller stocks with lots of upside running room. It is certainly not assured that they will eventually move more than catching bids for a day or two here or there; plus they have to work through loss-sales time. However some of them are capable of significant percentage gains ahead.Military weekend; possibly extraordinary. Yay or nay impacts Monday’s start. But even ‘if’ there is no open warfare with Iran, the S&P is due to rest soon. It is not a question as to whether the Fed got ahead of itself; but did the S&P.Don’t fight the Fed.. ‘or’ the 10-year… and don’t expect S&P to soar much with only so much fuel from the ‘commitment of traders’ excessive short positions. That’s the case ‘even if’ after the shorts got run in, they find the market caving if Israel goes after nuclear facilities in Iran; possibly the only chance to do so.More By This Author:Market Briefing For – Friday, Oct 4
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