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The Two Biggest Risks to the 2023 Year-end Rally

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The Two Biggest Risks to the Rally Until Year-end: Strengthen your market knowledge with a free trial of The Sevens Report.

What’s in Today’s Report:

  • The Two Biggest Risks to the Rally Until Year-end
  • Weekly Market Preview: Three Pillars of the Rally Remain Intact (For Now)
  • Weekly Economic Cheat Sheet – Service Sector Data in Focus

Stock futures are modestly lower with most global markets this morning amid renewed global growth concerns.

Economic data disappointed overnight with China’s Service PMI falling to a 2023 low of 51.8 vs. (E) 53.7 in August while the Eurozone Service PMI declined to 47.9 vs. (E) 48.3. The soft data rekindled global recession concerns putting risk-assets under pressure as we start the holiday shortened trading week.

Today, two second-tiered economic reports are due: Motor Vehicle Sales (E: 15.6M) and Factory Orders (E: -2.6%). But, neither are likely to meaningfully impact markets.

No Fed officials are on schedule to speak today. The Treasury will hold auctions for 3-Month, 6-Month, and 52-Week Bills late this morning. The results of the auctions could shed light on the market’s outlook for Fed policy plans in the months ahead. However, weak demand leading to a rise in short-duration yields will be viewed as hawkish which has the potential to put additional pressure on equity markets and risk assets today.

Risks to rally

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Jobs Report Preview

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Jobs Report Preview: Get the simple talking points you need to strengthen your client relationships with a free trial of The Sevens Report.

What’s in Today’s Report:

  • Jobs Day

Futures are modestly higher ahead of the jobs report following slightly better than expected final global manufacturing PMIs.

Economic data overnight was better than expected as the Chinese Caixin manufacturing PMI (a private market reading) beat estimates (51.0 vs. (E) 49.3). While EU (43.5 vs. (E) 43.7) & UK (43.0 vs. (E) 42.5) final manufacturing PMIs were no worse than feared.

Today there are two important economic reports that have the potential to move markets.  The first is the jobs report, and expectations are as follows:  170K Job Adds, 3.5% UE Rate, 0.3% m/m & 4.4% y/y Wage Growth).

As we covered in the Jobs Report Preview, “Too Hot” readings in job adds or wages will likely push Treasury yields higher and weigh on stocks.  But, a “Too Cold” job adds number would be a potentially more concerning signal over the medium and longer term, regardless if there’s any short term “bad is good” rally.

The other important economic report today is the ISM Manufacturing Index (E: 46.8) and markets will want to see stability.  The August flash PMIs were ugly and if we see the ISM manufacturing PMI drop from current levels, that will increase hard landing concerns.

Finally, there’s one Fed speaker today, Mester at 9:45 a.m. ET, but she shouldn’t move markets.

Jobs Report Preview

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Labor Market Analysis By Tom Essaye Quoted in Forbes

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Labor Market Analysis – Tom Essaye Quoted in Forbes: Strengthen your market knowledge with a free trial of The Sevens Report.

Weaker-Than-Expected August Job Growth Reported—Labor Market Officially At Pre-Pandemic Levels

In a Wednesday note to clients, which included the labor market analysis, Sevens Report analyst Tom Essaye cautioned against bullish investors celebrating a labor market slowdown as an outright win for stocks, writing the economy is now entering the “difficult” stage of navigating a higher-interest rate environment.

“If the labor market is seeing easing, then now is the time the Fed will have to perfectly execute the ‘soft landing,’ because getting the economy to slow is the ‘easy’ part of monetary policy.” wrote Tom Essaye, founder of the Sevens Report.

Click here to read more of Tom’s labor market analysis.

Forbes Labor Market

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Tom Essaye Quoted in Barron’s on August 30th, 2023

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U.S. Stock Futures Waver After Rally With More Jobs Data in Focus

“There are no Fed speakers today, so investors will be looking for more evidence that supports a continued pause in the Fed’s rate hiking cycle (or peak rates already being in) and ultimately a soft landing,” said Tom Essaye, founder of Sevens Report Research. “Anything that contradicts that narrative will be a headwind on equities and other risk assets today.”

Click here to read the full article.

Tom Essaye Quoted in Swissinfo.ch on August 28th, 2023

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Stocks Grind Higher at Start of Busy Economic Week: Markets Wrap

“This week is important because it has the chance to either reinforce the ‘soft/no landing’ and ‘disinflation’ pillars of the rally, or potentially undermine them,” said Tom Essaye, founder of The Sevens Report newsletter. “The former will likely result in a reflex rally, while the latter could open up a sharp drop in stocks. We’ll be watching closely.” 

Click here to read the full article.

 

Sevens Report Co-Editor, Tyler Richey, Quoted in MarketWatch on August 28th, 2023

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The stock market is set up for a relief rally. Don’t chase the bounce, says technician.

The August downtrend in stocks extended through a third consecutive week as of Friday’s close after Federal Reserve chair Jerome Powell said at the Jackson Hole economic symposium that it is still unclear if interest rates will need to rise further as policy makers remain unsure of whether more rate hikes are needed, said Tyler Richey, co-editor at Sevens Report Research. 

Friday’s “whipsaw drop to new lows for the week” on the S&P 500 futures ES00, 0.18% was not confirmed by new lows in the RSI indicator, which means the market is setting up for a potential relief rally to start the new week with resistance at a range of 4,465 to 4,515 in focus, Richey said.

Click here to read the full article.

Jobs Report Preview

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What’s in Today’s Report:

  • Jobs Report Preview
  • Oil Market Update & EIA Analysis

Futures are little changed following a busy night of mixed economic data.

Positively, the August Chinese PMIs were better than feared, rising to 50.3 vs. (E) 50.1 and helping to slightly reduce China recession worries.

Negatively, the EU flash HICP (their version of CPI) was hot on the headline (5.3% vs. (E) 5.1%) but in-line on core (5.3% y/y), underscoring that inflation is sticky in the EU.

Focus today will be on economic data, specifically Jobless Claims (E: 238K) and the Core PCE Price Index (E: 0.2% m/m, 4.2% y/y).  For stocks to extend the week’s gains (and continue to bounce back from the broader pullback) investors won’t want any surprises.  In the case of jobless claims, that means no big jump in claims that hints at economic weakness, nor a further drop that might make the Fed more hawkish.  On the core PCE Price Index, an in-line to slightly below reading would be positive as it’d further pressure Treasury yields and likely lift stocks.

Finally, there is one Fed speaker today, Collins at 9:00 a.m. ET, but she shouldn’t move markets.

Is Soft Economic Data a Reason to Buy Stocks?

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What’s in Today’s Report:

  • An Easing of the Labor Market Is a Good Thing, But Be Careful What You Wish For…
  • Jobless Claims vs. the S&P 500 – An Ominous Chart
  • JOLTS Takeaways
  • Consumer Confidence Shows Measurable Deterioration in Current Family Financial Situations: Chart

Futures are slightly lower this morning as yesterday’s sizeable rally in the S&P 500 is digested ahead of more domestic jobs data while global markets were mixed overnight.

In Asia, PBOC officials met with leaders from the private sector regarding stimulus and development, but so far, government efforts have been underwhelming and Chinese markets ended little changed.

In Europe, some regional German inflation statistics came in hot, buoying government bond yields this morning which could weigh on equities if the trend continues into the U.S. session.

Today, focus will be on economic data early with the ADP Employment Report (E: 200K) and GDP report (E: 2.4%) due out ahead of the bell while Pending Home Sales (E: -0.4%) will be released shortly after the open.

There are no Fed speakers today, so investors will be looking for more evidence that supports a continued pause in the Fed’s rate hiking cycle (or peak rates already being in) and ultimately a soft landing. Anything that contradicts that narrative will be a headwind on equities and other risk assets today.

Sevens Report Analysts Quoted in MarketWatch on August 28th, 2023

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Gold prices settle higher after back-to-back session losses

“On the charts, gold has held support at the $1,900 area, but more dollar strength or rising yields would jeopardize the year to date gains,” analysts at Sevens Report Research said in Monday’s newsletter.

Click here to read the full article.

Tom Essaye Quoted in BNN Bloomberg on August 28th, 2023

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Stocks Grind Higher at Start of Busy Economic Week: Markets Wrap

“This week is important because it has the chance to either reinforce the ‘soft/no landing’ and ‘disinflation’ pillars of the rally, or potentially undermine them,” said Tom Essaye, founder of The Sevens Report newsletter. “The former will likely result in a reflex rally, while the latter could open up a sharp drop in stocks. We’ll be watching closely.”

Click here to read the full article.