Following the very strong positive reaction to Fed Chair Jerome Powell on Wednesday, stocks held up relatively well on Thursday in a choppy session. There was some early selling that was triggered by a weaker-than-expected PMI report, but breadth was positive, and the indexes did not give very much back.
The market is growing more confident that inflation is slowing and that the Fed is going to attack it at a slower pace, but there is more concern now about the potential for a slower economy, which is why the weak PMI was a problem.
Friday morning the November jobs report will hit. This will be a good test of what is most important to the market. A weak report would help cement a less hawkish Fed in the near term, but it would be a signal of a slowing economy. If the market sells off on a weak report, then it will be evidence that the main focus is shifting to growth.
This battle between inflation and growth is going to continue for quite some time, and it is going to be very lumpy. The good news is that market players seem to be focusing on the positive aspects of economic data right now, and that is promising for more upside into the end of the year.
It was notable today that bonds were very strong. This is probably a signal that concern about slowing growth is taking hold, and bonds are viewed as a safe haven, especially as inflation cools.
Technically the indexes are in pretty good shape. The Dow Jones is the only index that moved over its August highs and is much more extended than anything else. The Nasdaq, on the other hand, isn't even close to its August high and has plenty of room to consolidate and move higher before overhead resistance becomes an issue.
Overall the market is looking healthy, but we will continue to have high levels of volatility as economic news hits. The jobs report will be a good illustration of that.
