The Market Is Waiting For The Jobs Report (Technically Speaking For 12/3)

The Fed released the latest Beige Book (emphasis added):

Most Federal Reserve Districts have characterized economic expansion as modest or moderate since the prior Beige Book period. However, four Districts described little or no growth, and five narratives noted that activity remained below pre-pandemic levels for at least some sectors. Moreover, Philadelphia and three of the four Midwestern Districts observed that activity began to slow in early November as COVID-19 cases surged. Reports tended to indicate higher-than-average growth of manufacturing, distribution and logistics, homebuilding, and existing home sales, although not without disruptions. Banking contacts in numerous Districts reported some deterioration of loan portfolios, particularly for commercial lending into the retail and leisure and hospitality sectors. An increase in delinquencies in 2021 is more widely anticipated. Most Districts reported that firms’ outlooks remained positive; however, optimism has waned–many contacts cited concerns over the recent pandemic wave, mandated restrictions (recent and prospective), and the looming expiration dates for unemployment benefits and for moratoriums on evictions and foreclosures.

The comments above are evenly split between bullish and bearish commentary. On the positive side, note the return of “modest and moderate” as the favorite adjectives to describe economic growth. On the negative side, the Midwest is slowing because of the rising cases, loan portfolios are expected to worsen, and there is concern about the expiration of unemployment benefits.

The EU economy is contracting again due to the rising number of virus cases and the re-imposition of various restrictions (emphasis added):

Driven by sharply reduced services activity, the eurozone’s private sector economy returned to contraction during November for the first time in five months. This was signalled by the IHS Markit Eurozone PMI® Composite Output Index which recorded a level of 45.3, down from October’s 50.0 but slightly better than the earlier flash reading.

The headline figure was driven lower by a downturn in service sector activity which fell to the greatest degree since May. In contrast, manufacturing output growth was sustained for the fifth month in a row, albeit at the slowest pace since July.

The service sector – which comprises the largest percentage of the EU economy – was the primary reason for the decline.

The Problem Solvers stimulus package is gaining support (emphasis added):

The top Democratic congressional leaders on Wednesday embraced a $908 billion coronavirus relief framework a massive concession meant to prod President Trump and Senate Republicans into accepting a compromise as cases spike and the economic recovery shows signs of faltering ahead of the holiday.

And potentially building even more momentum behind the plan, at least one new Republican senator offered measured support for the idea.

I’d still place long odds on its passage. But it’s nice to see that Congress working towards a consensus.

Let’s take a look at today’s performance tables:

This is a somewhat odd table. The long-end of the treasury market was the top performer followed by micro-caps, the 10-20 year section of the curve, and, finally, mid-caps. Large-caps were either up or down marginally.

Six of eleven sectors were higher. Energy was – once again – the primary mover, gaining a little more than 1%. Real estate was also up as was consumer discretionary. Utilities were the big loser thanks to rising rates.

Let’s start with today’s chart for the SPY:

SPY 1-day

First, notice that prices traded in a very narrow three-point range. This is due to the employment report, which comes out tomorrow. However, there were two key developments that moved the market. The first was news that Congress was talking about passing a stimulus package, which sent prices higher in the afternoon. But then came the announcement that California – one of the largest economies in the country – was going to reimpose certain restrictions. That news sent shares sharply lower, relatively speaking.

SPY 5-day

Prices are still above key levels, however. But notice the large spike in volume from today’s trading.

SPY 3-Month

But all of this seems somewhat moot on the 3-month chart. Prices have broken through resistance and are at a high.

The big issue right now is tomorrow’s employment report. While still positive, job growth has been slowing. If that trend continues, then trading could get bumpy.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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