There’s no question that today is going to be a very “thin” day in the markets, so anything can happen as we move through the day...but there’s no question that the better-than-expected employment report has the stock market rallying strongly once again this morning. The bond market is not seeing the same kind of outsized move...as the yield on the 10yr note still stands at/near 0.7%. That’s a bit higher than it was earlier in the week, but it’s still well below the June highs. Also, gold is a bit lower, but the $3 decline is not material at all. In other words, the Treasury & gold markets are not reacting in a big way...or at least not anywhere near the same level that the stock market is reacting (with its 40 point gain in the S&P futures as we write).
Even though this divergence is very, very similar to what we saw in late January and early February...it does not mean that the stock market is going to roll-over immediately. Of course, the odds that they’ll roll-over to the same degree it did in late February and March are incredibly low...given the stimulus that is being added to the system is huge. However, we do have to realize that the stock market really hasn’t done anything over the last month. So as good as the bounce has been off of the lower-end of that range on the S&P 500, the rally has definitely lost some steam....and the Fed’s balance sheet has stopped growing. (No coincidence there.)
Therefore it is our opinion that the rally will continue to be a very narrow one...which means it will remain a fragile one...and leave it vulnerable to high levels of volatility. That’s a traders dream and an investor’s nightmare, but it’s something ...
