Get Ready For Earnings Season!
Posted by Pete Stolcers on July 3
Yesterday, the market eventually caved in to selling pressure as investors fled for the exits. A higher than expected ADP employment index weighed on the market. Initial jobless claims have been creeping higher for the last four weeks and traders felt comfortable shorting the market ahead of today’s Unemployment Report. A worst-case scenario was priced into the market and no one was going to take any chances after last month’s dismal report.
Yesterday’s decline pushed the market down to a new relative low on a closing basis. The January capitulation low and the March retest both had higher closing lows.
This morning, the unemployment rate rose to 5.5% and 62,000 jobs were lost. That was slightly worse than expected. In addition, May and April’s employment numbers were revised down by 50,000 jobs. This marks the sixth consecutive loss as US employers cut workers and it represents the longest streak since 2002. As the unemployment rate moves higher, economic conditions will continue to deteriorate. Consumers are strapped with high debt levels and a huge portion of their discretionary income is being chewed up by higher fuel and food costs.
The ISM services number also came in weaker than expected. It came in at 48.2 when 52.0 was expected. A reading below 50 signals contraction.
The market is rallying today because worst-case scenarios were factored in. The market is also vastly oversold and we are due for a bounce. Personally, I am not buying into today’s rally. Yesterday, I mentioned to get short and to take profits. That advice paid off well and I suspected that no matter how bad the number was today, we would see a bounce.
As for the bigger picture, I believe that any substantial rally will present a shorting opportunity. The market will do well just to rally back to SPY 133. Global stock markets are selling off as interest rates move higher and inflation is a concern everywhere. I don’t believe global expansion will provide the soft landing most analysts were looking for.
Next week, the economic releases of the very light as earnings season kicks off. There are two major releases that will be of interest. Marriott will give us a glimpse at the tourism industry and General Electric will reveal earnings strength across many different sectors.
For today, I expect choppy trading within the existing range that has already been set. Keep your position small and dust off those golf clubs.
