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Kevin Matras   
Profit from the Pros
By Kevin Matras
Executive Vice President
Zacks Investment Research

All Eyes On This Morning's Employment Report

Stocks closed lower yesterday, ahead of this morning's jobs report.

With one more day to go, all of the indexes are poised to close higher for the week with the Dow up 4.18%, the S&P up 4.43%, the Nasdaq up 4.71%, and the Russell 2000 up 5.27%.

Yesterday's Challenger Job-Cut Report came in at 29,989 vs. last month's cuts of 20,485.

And Weekly Jobless Claims rose 29,000 to 219,000 vs. last week's 190K and views for 203K.

But the jobs report everybody is really waiting for is this morning's Employment Situation report. The consensus is calling for 250,000 new jobs (280K in the private sector and -30K in the public), with the unemployment rate staying the same at 3.7%.

This report will be looked at closely to see if the recent rise in interest rates, which has slowed down economic activity to a degree, has impacted hiring. A large number could be interpreted bullishly or bearishly. If the jobs market remains hot, that's good because it shows that talk of a deep recession is premature. But it can also signal that interest rates have not had much of an impact on slowing down the economy (and thus inflation), and the Fed will need to keep raising rates until it does.

A small number could also be interpreted either way as well. A smaller number could show that rate increases are having an impact and is finally starting to cool the labor market (and soon inflation). But it could also signal trouble – with a labor market that was expected to remain hot for years, finally showing fatigue, that could foreshadow more economic pain is coming.

All eyes will be on this morning's report.

Earlier this week, you heard me talking about follow-through days. After a sharp rally (1.25% or more) off the lows, traders want to see follow-through buying. Follow-through days are looked at as a signal that a new uptrend could be starting. The strongest follow-through days (a rally of 1% or more on increased volume), usually come between days 4 and 7. That doesn't mean we can't go higher before that. In fact, we did the very next day (the S&P on Monday (day 1), was up 2.59%, while Tuesday (day 2) was up 3.06%). It was down modestly on Wednesday (day 3), and then again yesterday (day 4). All that is fine. The only requirement to keep the follow-through count alive is to not take out day 1's lows. And so far we haven't.

But today (Friday) is day 5. Monday is day 6. And Tuesday is day 7. Ideally, it would be great to get our follow-through between today and next Tuesday. Follow-through days can come after that. But, again, the best ones are days 4-7.

In the meantime, there's plenty of positives in the economy right now.

That includes the market's seasonality: Q4 is typically the best quarter of the year for stocks, especially in midterm years. Q1, after midterms, is even better than Q4. And the third year in the presidential cycle (that's 2023) is typically the best year out of all four years. Valuations are low: they are at multiyear lows for the S&P and are below their 5-year average. And earnings season is right around the corner, which is good news since stocks typically go up during earnings season.

So there's plenty of things to get bullish about.

Let's see if this morning's Employment report ends up being one of them.


Kevin Matras

Executive Vice President, Zacks Investment Research


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