The equity indices were dancing around to headlines about Fed interest rate cuts, trade negotiations with Mexico and a surprisingly soft employment report from ADP. But what was most notable about the market action Wednesday was the breadth was negative although the indices traded sharply higher.
Bigger-cap stocks benefited while smaller-caps were very mixed. The main driving force on Wednesday was the expectation of a favorable resolution of Mexican trade.
It is anticipated that progress will be announced Thursday and even with a huge two-day rally a positive response to the news is expected. What happens after the initial reaction is a different issue, but if a deal with Mexico on immigration is made it will change sentiment about how to handle trade issues in general.
After the weak ADP numbers Wednesday, the jobs report on Friday will be of extra significance. There is a clear move toward rate cuts taking hold and any weak economic reports will add to the pressure on the Fed. However, the question is whether the market is willing to celebrate bad economic news in order to get already low interest rates even lower.
This is a very odd market right now with a variety of macro issues driving the action but some unusual underlying price action as well. The FAANG names have lost their leadership position but other large-caps are holding up the indices for now.
There is very good potential for a high level of volatility in the days ahead on significant news events. While this market has seen a good bounce, it still has substantial technical issues. It is going to take a lot more positive action for the indices to return to health.
Have a good evening. I'll see you Thursday.