Again, stocks and bonds rallied leaving the SPY and DIA at virtually the same all-time closing high level as the last month's report.
Recently, the market's pattern seems to be that the bulls find a reason to run the market up leading up to, and on the day of, the employment data. This makes sense coming out of a recession when it's natural to expect stronger economic and employment data.
Likewise, the market has spent the last several months rotating out of the big tech theme, and into the cyclical recovery themed stocks. This makes sense considering a very visible path to a widespread reopening of the pandemic economic shutdown.
On the surface, the market seemed to shrug off Friday's second month of lower than expected job growth, but this is how markets catch complacent investors by surprise while at the same time leaving clues of a change of heart developing.
These two misses suggest the current economic recovery isn't developing as expected!
The rise in bonds, and the basing pattern in the TLT, may suggest we may soon see a change of heart to a more bullish view of bonds.
I agree, a bond rally is hard to believe if inflation is on investors' mind, but don't dismiss it completely, because…
If investors start to believe that the economy is beginning to stall rather than beginning to accelerate, this will be a surprise that won't likely lead to "buy the dip" higher stock prices at the current levels.
At the very least, it's likely to lead to some very big sector rotation and market volatility.
Early signs of such a change of heart could be behind the recent strength in the semiconductors (SMH), and the recent weakness in housing stocks (XHB) and the transportation sector (IYT).
These three sectors are worth watching in terms of how they respond to the flow of economic news.
The market is great at making the unexpected look obvious in hindsight, and with that in mind, the employment data should be a wake-up warning that this economic recovery is most likely not going to unfold "as expected."
On a more actionable note, the stock market often has a change of heart after a big data-driven day like we had Friday.
You may recall, or you may have recognized this week's image as being, the Monday following the May employment report, which began a pretty ugly decline in stocks.
Beware of short-term weakness if the major indexes trade below Friday's Floor Trader Pivot levels, or worse, under Friday's low.
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Best wishes for your trading,
Geoff Bysshe
President
MarketGauge
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