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I have to tell you a story that has been fundamental to what (I think) I know about the stock market.
But first, let me cut to the chase and recap the jobs report for you.
In short, it was a sucker punch.
Nine out of eleven industries saw job losses and the headline figure came in 147k below expectations (+55k expected vs -92k actual). Brutal.
I broke down the gains / losses by industry below.
I also turned the table above into a chart for you below. No additional insights, just a different way to visualize things.
There’s a lot of red in that picture.
But this post isn’t about breaking down the jobs number.
Instead, I want to tell you about the value of bad news in markets.
There’s an adage I learned when working at Fundstrat that I want to share with you today.
Here it is: “markets bottom on bad news.”
I heard one of our strategists at the time say these exact words in our weekly meeting on October 13th, 2022.
His words are seared into my brain like a core memory. I can still hear them today.
At 8:30 AM that morning, YoY CPI printed 8.2% (vs 8.1% est) and MoM CPI printed 0.6% (vs 0.4% est). Hot across the board.
It wasn’t just bad news on the inflation front, it was terrible news.
By 10:00 AM the S&P 500 had already fallen 2.4%.
I opened my brokerage account and all I could see was red.
Sidenote: People think we bottomed on October 12th at 3,577. That’s what the closing prices show. But that morning puke on the 13th brought us below 3,500, all the way down to 3,491.
Now here’s where I want you to pay extra attention.
On the same day of that scolding hot CPI, the market rallied (intraday) from a low of 3,491 all the way to a close of 3,670.
That’s a 5.1% intraday reversal on a day when the news couldn’t be worse.
And that was also the bottom of the market.
Refreshing my brokerage account felt a bit better by 4:00 PM.
I’m showing you this day on a chart below. That “bottom candle” is not the 12th of October, 2022, it’s the 13th.
I’m obsessed with this day because it taught me that signal cannot be found in headline data prints. Instead, it can be found in the market’s reaction to the prints themselves.
Let me explain.
There was no market signal on April 9th of last year when the administration paused tariffs for most countries, but increased tariffs on Chinese imports to 125%.
The signal came after the S&P 500 surged 9.5% in reaction to the news.
That was the bottom.
And in a similar way, I don’t believe the signal in today’s jobs print can be found on the BLS website itself.
Instead, I’ll be searching for it in how actual stocks and sectors trade in reaction to the news.
If you’re bullish, you want to see a shrug-off of the print and a rally into the close.
If you’re bearish, you want to see further deterioration into the close.
I’m not here to pick sides. 'I’m here to listen to what the market is telling me.
In other words, I care more about what happens from 2PM to the close than what happened at 830 AM this morning, at least as an indicator to where the market might go next.
I’ll be glued to the screen until 4. I hope you join me 🙂
That’s all for today. Thank you, as always, for reading!
PS: I’ll be at Future Proof Citywide at booth 515 live demoing Exhibit A for advisors that stop by. If you are a current client or are an advisor interested in the custom-branded charts we offer, come say hello! I can’t wait to see you.