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POSITIONS: Long Healthcare (XLV); Short Industrials (XLI) and Basic Materials (XLB)

Tomorrow is an important day in reporting monthly U.S. economic statistics, the U.S. Labor Report is released.  Keith is on the road, but we were discussing the potential stock market reaction to the labor report and, in short, we actually have no idea how the market is going to react.  This is probably not the best answer for a group of people that get paid to tell you what direction the market and stocks are going to go, but sometimes the beauty of using a system based on chaos theory is that you just have to embrace uncertainty.

As it relates to the U.S. Labor Report tomorrow, I would highlight a couple of points: 

  1. Our Financials Team noted this morning that initial claims over the past few weeks have been coming in even worse than they would have suspected, even as last week’s claim, as reported this morning, fell 23K to 365K.                                                                                                                                                                                                       
  2. Last month the U.S. added 120,000 jobs and consensus estimates are looking for 160,000 jobs additions for April, so an acceleration.  Thus, a number tomorrow below 160,000 will be a disappointment.  

Interestingly, the recent Challenger job report released yesterday appeared to support our view that the job market may decelerate.  Specifically, planned job cuts increased by 7.1% from March to April and 11.2% on year-over-year basis.

Even as we embrace the uncertainty of the job report tomorrow, we’ll stick with our range in U.S. equities to adjust exposure and manage risk.  As outlined in the chart below, our TRADE resistance level is 1,415, TRADE support is 1,393, and TREND support is 1,359.  A close at, or near, the TRADE resistance line suggests that disappointing news tomorrow is not baked into market prices.

What the market will actually do tomorrow on this news, though, is not clear, but as Bob Dylan said:

“Chaos is a friend of mine.”

We agree.

Daryl G. Jones

Director of Research

Embracing Uncertainty: SP500 Levels, Refreshed - SPX