Do Fundamentals Even Matter In This Market?


Lately, traders have had to pay extra attention to economic data. Last week was no exception.

This time it wasn’t the Federal Reserve. Instead, it was one of the primary inputs into the Fed’s decision-making process – employment data.

Headlines almost all focused on the fact that fewer jobs were created than economists had expected. CNBC reported, “Jobs report disappoints — only 235,000 positions added vs. expectations of 720,000.”

The report noted that “leisure and hospitality jobs were flat during the month after leading the way for much of the year.” This point was highlighted in almost every article I read on the job report.

And I really don’t understand why this was so important.

In August, kids are getting ready to return to school. That means seasonal jobs in the leisure and hospitality sector are winding down. It seems obvious we should expect a slowdown in hiring in this sector, which includes amusement parks, hotels where families on summer vacation stay, and activities college students on summer breaks are partaking in.

In many years — even normal years — August and September are the worst months of the year for leisure and hospitality jobs.

After getting past that point, the rest of the jobs report wasn’t really bad. The unemployment rate fell to 5.2% from 5.4% in July. The labor force participation rate remained unchanged at 61.7%, well below its pre-pandemic high of 63.4%. This means millions of people didn’t look for a job in August, which helps explain why so few people were hired.

Here’s My Outlook…

Sure, the report isn’t good news, but it’s not terrible. The number of people participating in the labor force needs to rise for the economy to grow faster than it is. Enticing nonparticipants into the workforce will be a challenge and might not happen. That means we may see slow economic growth, like we did in the first decade of this century.

But that doesn’t mean we are doomed to a slow stock market like we experienced then. This time is different because the Federal Reserve has added money to the economy and the public mood is more similar to the 1990s than the 2000s.

Stocks could move significantly higher, even with bad economic news, as long as there is money to invest and individuals willing to invest that money. This doesn’t mean the fundamentals underlying the economy or the stock market are healthy. It just means fundamentals don’t matter for a time. It’s a dangerous market… but one that could continue going up.

Now, turning to the short term, I want to look at my indicators, as usual, to give me the best idea for how we can profit…

My Income Trader Volatility (ITV) indicator remains bullish as shown in the bottom panel of the chart of the SPDR S&P 500 ETF (NYSE: SPY) below.

As I always note, ITV is similar to VIX in that it rises as prices fall. Its current position, with the indicator (red line) below its moving average (blue line), points to continued strength in stocks.

Last week’s price action pushed my Profit Amplifier Momentum (PAM) to a “buy” signal.

PAM is designed as a short-term indicator. The red bars are bearish, and the green bars are bullish. Its recent uptrend (marked by the change from red bars to green) is a potential indicator of strength. Its recent movement is another potential indicator of strength.

Based on my indicators, I am still bullish on the S&P 500 in the short term. But over at my Maximum Income premium service, we are using a strategy that works in any kind of market…

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