Strong job numbers means fed has less data to support interest rate cuts. The market LOVES interest rate cuts. So why did it go up in the face of conflicting data to the bullish low interest rate narratative. Seriously I'd love to hear a reasonable explanation on the rally friday. woof.
The answer might be in the bond market. Equites and bonds are inversely related (this isn't a hard and fast rule, because at times both can rally and sell off in sync). On Friday, the bonds sold off. Why did the bonds sell-off? Well, strong job numbers mean the possibility of added inflationary pressure to the economy, which will result in either no rate cut or a rate hike. So, I'm assuming here, the bond market priced that in. Hence the sell-off of bonds and rally in equities.
The number was already priced in on from the sell off the day before (or the markets were pricing in an even more bearish number)
IMV, the market is in "strong psycho-up" mode.... damn the torpedoes, full speed ahead! BUY EVERY DIP.... regardless of apparent "reason" for the dip.
ok. you are the first one to actually articulate that. i sort of came to that thru a process of elimination a day later. you are likely right. crazy that the market still sees upside from here with at best 1 rate cut this year if any.
First of all, you need to dismiss the illusion that the FED is an omnipotent quasi-government entity. In reality, they can be knocked around just like traders and investors. What is likely leading equities higher is the "Safety Trade". Before the DEI fad grabbed the U.S. Government, America had had pretty much superiority in most things military. Changes have been implemented to accommodate the DEI folks. But the legacy of superiority still exists. Plus the U.S. still has huge proven reserves of Crude Oil. Investment Money is coming here (to hide) because of those perceptions. And it is going into equities, now. If Treasury yields move much higher, they will nibble on that too. In my humble opinion (IMHO)
Fundamentals are not the whole story here. Another part is market internals: There's are large money flows acting as volatility suppressants. As soon as there's any not too powerful spike in vol there are so many actors willing to sell vol into it. You might also consider that the current rate is likely below neutral, i.e. it is not restrictive. Evidence is everywhere. As long as Powell steers his ship on course and doesn't hike it's not a big deal. Might be that he actually loves inflation eating away at US debt. Overall the moral of the story is to not fall into a trap of thinking too much about what the market should do and instead focus on what it's actually doing, assuming you're just trading delta. Chances are it will converge with fundamentals at some point but until then the party is on. PS I'm no expert at this, I just tend to read a lot. Could be market crashes the coming week and I will again look like an idiot.
I may not answer your question, but personally, I stopped making sense of the market and after that the market made much more sense. Maybe it's irrational, maybe it's a bubble and maybe it's not, but there's no doubt we're in a bull market at the moment and the world still seems to be flowing over with money. Thursday's Close looked nasty and after non-stop pumping for the last months a mere 1.35 % down seems like a market crash. However, the last few times that happened in recent history the market rallied the next day, so Friday was not a surprise by any means.
In reality, markets can still move well with the current interest rates (see 1993-2000). Interest rates do not have to be zero permanently. In fact, zero interest rates are what got us into this fiscal mess (greenspan introduced this twisted notion). God forbid, we start attempting to balance our budget. During 2001-2008, there were many many mistakes made by the fed and at some point these need to be corrected.