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Week Ahead: Stocks, Dollar, Gold To Waver As Investors Seek Focus After Soft NFP

By Investing.com (Pinchas Cohen/Investing.com)Market OverviewSep 05, 2021 08:25AM ET
www.investing.com/analysis/week-ahead-stocks-dollar-gold-to-waver-as-investors-seek-focus-after-soft-nfp-200600975
Week Ahead: Stocks, Dollar, Gold To Waver As Investors Seek Focus After Soft NFP
By Investing.com (Pinchas Cohen/Investing.com)   |  Sep 05, 2021 08:25AM ET
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  • Analysts debate direction of stocks based on nothing for investors to focus on
  • Reflation trade reverses, supporting case that investors continue eyeing stimulus

Will investors grow cautious in the wake of disappointing August jobs numbers, even as stocks hit or hover near all-time highs, or will they now drive equities even higher, focusing on the prospect of strong corporate profits going forward?

While we expect stocks to fluctuate in the short-term as markets await another clear catalyst, after the dust settles, we predict investor focus will fix neither on frothy valuations nor corporate results.

Our view remains as it was ahead of Friday's NFP release—it's more likely than not that investors will be bullish specifically because of the weak jobs report. We've often noted that stocks sell off despite improving economic data, on fears of a more rapid end to stimulus, whereas poor figures were greeted with rallies, on the view the negative numbers will help prolong government and central bank support.

Given that's what occurred previously, it stands to reason it should be the case even more so now, just days after the Jackson Hole symposium during which Fed Chair Jerome Powell predicated tightening of monetary policy on an improving jobs market.

Indecision Reigns, New Catalyst Awaited

On Friday, stock traders appeared undecided. With Wall Street analysts warning that buyers will begin questioning whether the most expensive valuations in history are worth betting on, predictions of increased bullishness after a strong earnings season, and our view that we’re likely to see additional gains as the market dodges another bullet in the form of a panicked selloff on the prospect of reduced liquidity in markets—investors seemed to be biding their time. The S&P 500 finished the week flat.

However, digging under the surface, it becomes obvious there are vast differences in sector performance. Technology outperformed on Friday, rising 0.4%, while Utilities (-0.8%) and value shares, such as Materials (-0.7%), Financials, Industrials and Energy (all down -0.6%) underperformed.

In other words, traders rerouted out of value sectors and back into technology's growth stocks. The same paradigm is visible for the indices as well. The tech-heavy NASDAQ 100 outperfored, +0.4% (the same as the SPX technology sector), followed by the NASDAQ Composite with a 0.2% advance...the only two benchmarks in the green on Friday.

On the other side of the Reflation Trade spectrum: the Russell 2000, the index most sensitive to an economic recovery, dropped 0.5%, and the Dow Jones Industrial Average, whose blue chip companies include an array of value stocks, was the second worst performer, with a 0.2 percent dip.

We think this pattern supports our outlook—traders are expecting a weakening economy and thus returning to stocks that outperform during a contraction.

Yields, including for the 10-year benchmark Treasury, jumped on Friday, probably because investors pivoted away from the safety of US sovereign bonds, into risk assets, including stocks, as the timeline for trimming stimulus got pushed further back.

UST Daily
UST Daily

Rates jumped but retreated after touching the neckline of a H&S bottom.

Foreign investors dumping Treasuries, including selling the US dollar as part of the transaction, pushed the greenback lower for a sixth straight day, for the tenth out of eleven days.

Dollar Daily
Dollar Daily

The USD dipped below the neckline of a potential top but found support and closed higher.

Gold on the other hand jumped.

Gold Daily
Gold Daily

The precious metal completed a bullish pennant, which was pierced by both the 100 and 200 DMAs, after the price broke free of a falling channel.

Though Bitcoin has been sputtering since late August, as of this writing it has once again popped above $50,000.

BTC/USD Daily
BTC/USD Daily

The digital token made a higher high on Friday, but developed a series of doji, indicating the trend could be running out of steam. A close below the 200 DMA for the cryptocurrency would mean it had topped out, as the indicators seem to suggest, having provided negative divergences.

Oil closed lower on Friday.

Oil Daily
Oil Daily

WTI fell from the top of a falling channel, as the bulls try to complete a H&S bottom.

The Week Ahead

All times listed are EDT

Monday

Labor Day holiday in the United States, Canada. Markets are closed.

4:30: UK – Construction PMI: likely to fall to 56.9 from 58.7 previously.

Tuesday

00:30: Australia – RBA Interest Rate Decision: rates are expected to remain steady at 0.10%.

5:00: Germany – ZEW Economic Sentiment: seen to plunge to 30.0 from 40.4.

19:50: Japan – GDP: anticipated to rise to 0.4% from 0.3% monthly, to 1.6% from 1.3% YoY.

Wednesday

10:00: US – JOLTs Job Openings: expected to drop to 9.281M from 10.073M.

10:00: Canada – BoC Interest Rate Decision: predicted to remain unchanged at 0.25%.

10:00: Canada – Ivey PMI: came in at 56.4 in July.

Thursday

7:45: Eurozone – ECB Monetary Policy Statement, Interest Rate Decision

8:30: US – Initial Jobless Claims: forecast to print at 335K, down from 340K previously.

Friday

2:00: UK – GDP: expected to dip to 0.50%.

2:00: UK – Manufacturing Production: probably edged down to 0.1% from 0.2%.

6:30: Russia – Interest Rate Decision: estimated to rise to 6.75% from 6.50%.

8:30: US – PPI: expected to decline to 0.6% from 1.0%.

8:30: Canada – Employment Change: predicted to plunge to 75.0K from 94.0K

Week Ahead: Stocks, Dollar, Gold To Waver As Investors Seek Focus After Soft NFP
 

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Week Ahead: Stocks, Dollar, Gold To Waver As Investors Seek Focus After Soft NFP

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Comments (6)
NUNO LOUREIRO
NUNO LOUREIRO Sep 05, 2021 4:39PM ET
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NFP was "disappointing"?? OK, but the unemployment rate came down 0,2%, from 5,4 to 5,2, personally I think this is more important than the NFP numbers. But the "market narrative" sometimes likes to focus in something else to justify other things
trevor hron
trevor hron Sep 05, 2021 4:39PM ET
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Its people losing unemployment benifits. Not that people are going back to work
NUNO LOUREIRO
NUNO LOUREIRO Sep 05, 2021 4:39PM ET
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Is it??? In my country even when you lose benefits, if you don't have a job and are looking for it, you are still part of the unemployment numbers, I think is like this everywhere
Todd Gray
Todd Gray Sep 05, 2021 3:02PM ET
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Unprecidented M2 money supply negates much of this thesis. considering M2, valuations are not near as high as several well known historic periods.
Todd Gray
Todd Gray Sep 05, 2021 3:02PM ET
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considering the current, unprecedented M2 supply, this bubble is vastly smaller than both the 08 & dotcom bubbles.
Pinchas Cohen
Pinchas Cohen Sep 05, 2021 3:02PM ET
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Todd Gray  And what do you think will happen once the drug is taken away, seen to be taken away, to can no longer keep the addict from falling apart?
Dharmaraj Paul
Dharmaraj Paul Sep 05, 2021 2:33PM ET
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great Sir!!your outlook to market teaches a lot.
Pinchas Cohen
Pinchas Cohen Sep 05, 2021 2:33PM ET
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Thanks, Dharmaraj
Todd Gray
Todd Gray Sep 05, 2021 2:04PM ET
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oil demand is down 10% from pre-covid demand. oil inventories sit a few percent below pre-covid levels. oil trades above pre-covid prices. demand will take years to pick up. current euro/dollar put/call ratio is 0.195. UK junk bonds just turned negative yield - first time in history. if Powell's hold to his consistent narrative, tapering will be deferred. competition will bring inflation in line, but may take a while - always does. we've had subpar inflation for years - a little catch up isn't so bad. dollars is today worth about .82 cents. T.I.N.A. a bubble is a bubble. the dot com bubble continued for over a year from the point we're at right now, but "much" more QE today. so, how much does it really matter? it eventually returns to earth & the authentic reopening cycle bull run, lasting a year or two, begins. system reset! hopefully, people will return to normal family ideals & US population growth increases - long range health's imperative. loonie short term greed is not.
jason xx
jason xx Sep 05, 2021 12:19PM ET
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Does Technology actually outperform during a market contraction like you wrote?
Pinchas Cohen
Pinchas Cohen Sep 05, 2021 12:19PM ET
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Yup
analiza beboso
analiza beboso Sep 05, 2021 12:01PM ET
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thanks ...highly appreciated
Pinchas Cohen
Pinchas Cohen Sep 05, 2021 12:01PM ET
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You got, Analiza!
 
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