Stocks jumped on Monday, recovering from the Good Friday’s futures smackdown that happened in response to the worst jobs report in two years. In case you missed it: Nonfarm payrolls expanded by just 126,000 versus the 247,000 consensus estimate.
Averaging the last few months, there seems to be a clear deceleration trend from the highs of last summer.
The report undermined one of the last remaining bright spots amid a slowdown in U.S. economic data and raised fears the Federal Reserve, which seems committed to raising interest rates this year for the first time since 2006, would tighten into a mid-cycle slowdown.
The chill of all this sent the Dow Jones Industrial Average down some 200 points and cast a pall over the holiday weekend; weakness that was more than fully reversed as cash trading resumed on Monday. In the end, the Dow and the S&P 500 gained 0.7%, the Nasdaq Composite gained 0.6% and the Russell 2000 gained 0.4%.
Energy stocks led the way with a gain of 1.8%, while financials were the laggards, posting only a 0.1% increase.
Cytori Therapeutics Inc (NASDAQ:CYTX) gained 13.8% on news that Cytori Celution received regulatory clearance in China with a product launch to follow immediately. Tesla Motors Inc (NASDAQ:TSLA) gained 6.3% after it announced delivery of 10,030 cars in the first quarter; ahead of its 9,500 unit guidance and setting a new record for deliveries in a quarter by posting a 55% increase over the first quarter last year. Zillow Group Inc (NASDAQ:Z) dropped 3.6% on an analyst downgrade.
So, what changed?
The narrative flipped. Bad news is good news again as traders remembered the Fed has emphasized the need for confidence that job growth would continue and inflation, which is currently well below its 2% percent target, would normalize.
Moreover, policymakers have re-emphasized the data dependency of any rate hike decisions including fresh comments from New York Fed President William Dudley. If this is true, we are likely to see a further softening of the Fed’s economic outlook in its upcoming policy announcement on April 29.
As a result, the Fed funds futures market has further pushed out its expectations of the pace and timing of interest rate hikes while Wall Street analysts are increasingly talking up the potential for no action on policy tightening until early 2016.
As the Fed nears another decision point on the path of monetary policy, the stock market is nearing a key level as well: The NYSE Composite is once again approaching overhead resistance that has constrained the broad measure of equity performance since last July. A breakout could result in a resumption of the easy gains seen in 2013 and early 2014.
The cheap money trade is in the driver’s seat, resulting in a big breakdown of the U.S. dollar’s recent uptrend and sending dollar-sensitive commodities such as crude oil and precious metals higher.
That’s great news for Edge subscribers, who have watched their ProShares Ultra Silver (ETF) (NYSEARCA:AGQ) position gain more than 4.2% so far this month — with room for much more. They’ve also benefited from the recent strength of utility stocks on lower rate expectations, pushing Duke Energy Corp. (NYSE:DUK) up 3.1% since recommended on March 20 as shares break out of the downtrend that started back in January.
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