Strong Jobs Report Evokes 'Taper' Worries
The markets have been volatile this morning. The stock market opened sharply higher after the strong jobs report, but quickly gave up all of those gains and faded back to the flat line. Since then it has started to move back into positive territory.
Nonfarm payrolls rose by 195,000, well above expectations of 166,000 gains. But the unemployment rate ticked a notch higher to 7.6%. The strong jobs report caused interest rates to spike as traders fear that the improving employment picture makes it more likely that the Fed will begin to taper its asset purchases sooner rather than later (maybe September?).
Bond yields spiked with the 10-year rising 17 basis points from Wednesday's close to 2.69% currently.
That's a very big one-day move in bond yields, and as can be expected interest-sensitive areas are getting hit by aggressive selling. REITs (IYR) are down by -2.4% so far while utilities (XLU) are down 1.0%. On the flip side, regional banks (KRE) are up 2.0% and biotechs are 1.2% higher.
Asian markets were higher overnight. Goldman Sachs lowered its growth forecast for India for 2014 from 6.4% to 6.0% and 2015 as well.
Europe's markets are higher right now after the ECB left rates unchanged. Draghi said that key rates will remain at or below current levels for an extended period of time. Sounds like he's taking a page from the Fed book. Separately, the IMF lowered its forecast for Italy and said the ECB should engage in direct asset purchases.
The dollar index is sharply higher on today's rate spike and that is weighing on most commodities. Oil prices are higher near $102, but gold prices are weak again back down near $1212. Silver and copper prices are also down sharply.
The volatility index is lower and hovering near the 16.0 level.
Trading comment: We have said to watch the key 50-day averages. Today for the 4th time in the last week the S&P 500 rallied up to its overhead 50-day and then reversed lower. Normally the more times you test a resistance level the closer you are to seeing a successful retest. Volume is also running lighter than normal on this holiday shortened week, so we might have to wait until next week to see a more definitive move either above this 50-day line or away from it signaling the market has more work to do in correction mode before another rally is in the cards. We are not making any big moves today.