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Market Confidence Prevails Amid Rate Hike Expectations

U.S. stocks eked out a shortened Holy Week on Thursday with small gains, despite being closed on Good Friday when the latest Jobs number was released. 

Nonfarm payroll for March rosed by 236,000, in line with expectations, and the previous month was revised upward to 326,000 while and the unemployment rate fell to 3.5%. 

However, average hourly earnings rose 0.3%, with annual wages rising at the slowest pace since 2021. 

The data should lead the Fed to hike another 25 basis points in the next meeting. Treasury yields and the dollar rosed in thin trading and the equity futures market which traded a short session also rose higher after the data. 

For the week the S&P lost 0.10%, the Nasdaq lost 1% and the Dow closed higher by 0.63% 

Here are the closing levels on Thursday, 6th April 2023:

 Last Change %Change 
Dow Jones 33,485.29. +2.57. +0.01% 
S&P 500 4,105.02 +14.64. +0.36% 
Nasdaq Comp 12,087.96. +91.10. +0.76% 
U.S. 10Y 3.39%   
VIX 18.4 -0.84 -3.56% 

The takeaway from last week is that the market continues to hold up quite well as selling has been met by dip buying. Although the market closed slightly lower for the week, futures trading after the release of the jobs number was higher. 

It did not matter that the odds for a hike in May is much higher. In fact, it’s almost guaranteed, the market once again does not look like it cares and continues to be bid. 

More and more analysts are saying that the likelihood of Fed cuts this year is close to zero, but the market seems to be focused on the possibility of at least 3 cuts and continues to trade on that belief. 

Betting against that belief has been very painful for shorts, so I don’t think we will see any kind of major selloff unless we get some very bad news.  

Given the current market climate, caution is advised. It would be wise to hope for the best but prepare for the worst. 

Finally, I would like to take this opportunity to wish you and your families a happy and blessed Easter! 

Source: CBOE, Bloomberg. 

This commentary is written by James Gomes.
James has been in the finance industry for over 30 years and most recently worked for a large U.S. bank for more than 20 years.

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