Wake Up! It's Payrolls Friday

Wake Up! It's Payrolls Friday

Non-farm payrolls can lay the foundation for a good or bad month in the S&P 500 as well as cause a potential trend change for the dollar.

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If you haven't been up for hours and hours already and had at least two bulletproof coffees or a caffeinated tea, then can you possibly be a real trader? It's payrolls Friday (also known as non-farm payrolls Friday or Jobs day) and while the importance of this piece of economic data rises and falls with current situations, if you ask any trader to name the economic figure that has dominated their careers over all the others, I'd bet 99.9% would blurt out "payrolls Friday". For about a 10-year period prior to the financial crisis, you could actually invest on a monthly basis just from the result of this number. If the S&P 500 finished the day positive after payrolls, there was an upwards of 80% probability it would finish the month positively.    

Foresight is less than 20-20

You are probably reading this after the number has come out, but I'm writing it prior. There are two very important things to note for payrolls Friday. One is specific to this number and the other is more general. The first is, the headline figure will not be very important unless it is a blowout beat or miss. Last months number of 102K was low but was expected to be, however this month the headline is expected at around 193K. It will need to be below 150K or above 230K for the S&P to respond directly to the headline. Unfortunately, too high or too low versus expectations is likely to cause more selling pressure either way.

One means the economy is slowing as many already fear, the other means rates are going to rise more quickly than the market currently expects. The wage component and the unemployment rate combined with the labor force participation rate will dictate the direction of equities. The dollar, on the other hand, can go either way. The greenback has been very strong lately but is up against some short-term resistance, so faster interest rate increases will mean stronger dollar and slower increases, a weaker one. The second thing is the first market move on payrolls Friday is often the wrong one. There is a lot to sift through and almost all of the data matters, so the knee-jerk reaction in the Dow, the S&P as well as the Nasdaq gets reversed much of the time. It is often best to keep your powder dry and wait for the first move to shake out before you pick a direction. Now its time for more espresso before the data hits. Good luck today.

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