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TRADING THE WEEK: Nothing Sticks to ‘Teflon’ Market

Traders Magazine Online News, May 8, 2017

John D'Antona Jr.

The future of the equities trading markets isn’t so bright that it has to wear shades. But it doesn’t need an umbrella either.

The equities market has managed to move very little amid multiple economic data reports, earnings and speeches from the entire Federal Reserve governorship. Volatility remains low and brokers are reporting its so quiet on the Street that the traditional “sell in May and go away” trade isn’t even making the rounds.

So, what exactly is going on?

Nicolas Colas

Looking back to last week, the Federal Reserve didn't change its key interest rate when it met Wednesday. In a statement after the two-day meeting, the rate-setting committee downplayed setbacks in economic growth and hiring, possibly signaling it is leaving the door open for a rate hike in June. But that doesn’t mean the interest rate setting body isn’t going to move soon.

According to the research group at BNP Paribas, last Friday’s nonfarm payrolls justify the Fed’s looking through the recent weak numbers relating to GDP and support a June hike. BNP noted that despite the economy only averaging a jobs growth of 184.5k in the first four months of the year the employment rate has still dropped to 4.4%, equaling the lows registered in 2006-07. 

“The Fed Chair’s favorite measure of labor underutilization, the U-6 measure of unemployment, has fallen from 9.2% in December last year to 8.6%, the lowest since 2007,” the analysts wrote in a trading note. “The labor market looks extremely tight. We believe these figures will very much worry the hawks on the FOMC, since the lower unemployment rate shows the economy is growing above potential even before tax cuts are legislated. This opens the distinct possibility of overheating in the economy in 2018, when they are likely to bite. Against this background, the Fed needs to carry on hiking, with the aim, even if the Fed dare not say so, of slowing growth and curbing the decline in the unemployment rate.”

But this doesn’t portend doom and gloom for equities, according to Nick Colas, chief market strategist at Convergex, who noted there has been an extended period with no selling of equities regardless of data or volatility levels. He said that continued lack of selling in the equities market was due more to “seller’s strike” than anything else.

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