A much stronger-than-anticipated ADP jobs number is creating some market movement this morning. The chances of a Fed interest rate hike next week are now a near certainty and the talk is turning to whether there will be three or four hikes this year. Twenty-year bonds are hitting the highest yield levels in years and the iShares 20+ Year Treasury Bond Fund (TLT) is at the lowest levels since December.
What is most interesting about the action is the tepid reaction of equities. The DJIA is flat, the Nasdaq leading and other indices are mixed. Breadth is slightly negative, new 12-month highs are under 100, but biotechnology has bounced back and I'm seeing some pockets of speculative action.
A good example of the positive action in individual stocks is Momo (MOMO) , which I discussed yesterday following a solid earnings report. It is seeing strong follow through today and is being chased. Arista Networks (ANET) is another one that is acting well.
In the biotechnology sector, Kite Pharmaceuticals (KITE) and Sarepta Therapeutics (SRPT) are at the top of my radar at the moment. Aurinia Pharmaceuticals (AUPH) was a big winner yesterday and is pulling back. I'll be looking for add points as it develops.
With the Fed almost certain to raise rates next week, I expect to see continued interest in financials. I'm planning on buying the Financial Select Sector SPDR ETF (XLF) on weakness into that event. Financials are the obvious trade on a hawkish Fed, but I'm not looking for a huge move.
The big story that many market commentators seem to be missing is that the jobs news is due in great party to increased optimism created by Trump's fiscal policy. The only reason companies hire is because they see their circumstances improving. It isn't rocket science.
Keep an eye on the pattern of morning weakness and afternoon strength. That is going to be a key indicator of overall market health.