Stock Markets Happier on a Hiring Spree by US Businesses

An article I wrote for Markets and Money back in early February discussed how US stocks were in free fall and global markets were tumbling.

Markets looked to be on the brink of collapse because of concerns over rising interest rates and higher inflation.

The Dow Jones experienced its biggest decline during a trading day in history, when on 5 February the index plunged almost 1,600 points.

The market turmoil saw all the bears come out of hibernation.

But as I was able to write at the time, and in the heat of the moment, this bull market might still have time to run.

I pointed out that — with housing starts at 10-year highs, record breaking consumer spending and strong corporate earnings — calls of a market collapse might just be a little bit premature.

Anyway, that was then. This is now.

Why are things looking up for the stock market?

A month seems to be a long time in markets. In stark contrast to the month before, the market seems to have a happier disposition now.

Perhaps due to the latest US jobs report, which came out on Friday.

There’s no other way to describe it. The payroll numbers were an absolute stunner! It seems American businesses have been on a hiring spree.

Nonfarm payrolls increased by 313,000 in February. That smashed the 200,000 estimate expected by analysts.

It reaffirmed the strength of the US economy. The other kicker was that wages grew less than expected, so it also diminished some inflationary concerns the market had the month before.

US stocks surged on the news.

The Dow Jones Index rallied more than 400 points and the S&P 500 index broke above and reclaimed the 50-day moving average.

The Nasdaq composite and Nasdaq 100 indices look even more bullish, busting above prior tops into all-time new highs.

Here’s a chart of the Nasdaq 100 index bursting above the prior resistance level of around 7000. Check it out…

Nasdaq 100 index bursting above the prior resistance level of around 7000.13-03-2018

Source: Optuma
[Click to enlarge]

The market was due for a correction

After a short, sharp correction from the late January high, the market quickly recovered. Also note the higher low leading into good news. Nothing surprises the market.

In all of this you have you have to understand that corrections are a normal part of bull markets. But everyone seems to forget this the very moment we actually have one!

We saw in February a retracement of a bull run with barely any down move since the low in February 2016.

Stocks were fully priced in, and some type of selloff was due.

There comes a point when you stop chasing even good companies.

The other thing to remember is that newspapers are sold on emotional headlines. And they make it as emotional as can be.

For one, the Dow Jones may have experienced its biggest one-day decline in trading history, but you have to remember the numbers are getting bigger. So, declines expressed in percentage terms perhaps put things into a bit more perspective.

The other thing that helps to put things into perspective is having a broader view of the market. Instead of just looking at the daily chart, bring up the monthly chart.

If you go back and look again at the above daily chart of the Nasdaq 100 index, and then broaden the view to the monthly chart below, see how it gives you a different perspective.

Nasdaq 100 index, 13-03-2018

Source: Optuma
[Click to enlarge]

It helps to take out some of the emotion. The turmoil and panic of the past month hardly registers on the monthly chart.

It’s instructive to study the chart, because if you go back and look at 2007–08, see how the chart is breaking monthly lows. It’s telling you of the bad news to come.

Likewise, if we go forward to the present day, to call a market collapse with any confidence, you’d like to see the monthly chart breaking lows from years prior.

It’s just not happening presently. The recent panic hardly impacts the chart.

The long-term trend remains up for the Nasdaq 100, as well as the Nasdaq Composite index. It suggests this year is likely to be another strong year for stocks.

Let’s wait and see.

That’s not to suggest there might not be storm clouds on the horizon, for 2019 and beyond.

If you know your real estate cycle, you’ll know we’re at the tail-end of the first half of that cycle. So all the good news should be coming out now to bring in the mid-cycle top. Which is getting closer now than ever before.

When you understand the sequence and timing of the real estate cycle, you can know broadly what’s coming next for the economy.

That knowledge is pure gold.

It’s the real estate cycle which drives the economy, not the stock market. And so far, the real estate cycle is playing out no differently to previous cycles; in fact, it’s going exactly to script.

So, if you want to know more about the real estate cycle and what’s coming for the economy in 2019 and beyond, go here.


Terence Duffy,
Lead Researcher, Cycles, Trends and Forecasts

Terence Duffy is an analyst and chartist, specialising in researching economic trends and cycles.  His primary focus is housing and land affordability. But you can also depend on him to offer his unique analysis of stock market charts. As Terence will show you, the charts often forecast, well in advance, the good or bad news to come — which he details in Cycles, Trends and Forecasts.

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