Positive news about progress on a China trade deal and better-than-expected factory orders helped the major indices to break out of a month-long trading range. Volume increased and the move was strong enough for Investors Business Daily to proclaim that the market is back in a confirmed uptrend.
The billion-dollar question for market players is whether stocks can build on the positive technical picture. The bulls deserve the benefit of the doubt, but there are several issues lurking that can make navigation very difficult.
First is the continued headline risk. The market has jumped around erratically on China trade news and President Trump's impulsive tweets in response to developments. Currently, it looks like both sides are working toward a positive meeting in early October, but an eruption is always possible.
The second issue that will drive the market is economic expectations and the likely Federal Reserve reaction. We will have a taste of this dynamic at 8.30 a.m. ET, when the August jobs report is issued. It is currently expected that there were 180,000 jobs added in August, but some economists argue that this is a lagging indicator and that weaker job growth is on the horizon. The trade issue is creating uncertainty for employers and it will likely have an impact the longer it drags out.
The debate about the likelihood of a recession will continue to build, but the market is not likely to panic over slowing growth if it is convinced that the Fed is prepared to deal with it through a series of rate cuts.
Jerome Powell is scheduled to speak in Switzerland at 12.30 p.m. ET. The Fed will go into a black-out period next week in front of its policy decision on September 18.
A rate cut of a quarter point is already well anticipated, but the focus will be on any signal by the Fed that a series of cuts are on the horizon. The soft ISM Manufacturing number this past Tuesday is causing more market players to believe that the Fed will need to be increasingly aggressive.
A strong jobs report today will help to indicate that the Fed is not behind the curve as far as interest rates, but the forecasts of a recession will continue to build. The bulls are counting on a friendly Fed to support the market while the bears are convinced that it is already too late for interest rate cuts to save the economy from a slowdown.
We have a slightly positive open on the way, but the jobs report will serve as a trigger for movement. With China trade on hold for now, the main focus will be on Powell's speech at midday.
My main focus will be trying to find some new technical setups to buy. My cash levels remain quite high as I hunt for some new stock picks with the potential for sustained momentum.