Market Commentary
Brian Stutland

Introduction:
As the opening bell rings on June 1st, investors are gearing up for another day of market activity and economic data. With May behind us, the popular “sell in May and go away” strategy is now a thing of the past. However, the consequences of yesterday’s decisions may still be felt today. Additionally, tomorrow’s highly anticipated jobs report adds further significance to the day’s trading. In this blog, we will explore three possible outcomes from the jobs report and delve into a growing trend of investor behavior. So, let’s dive in and examine the crucial factors to consider as the market opens.

Economic Data and the Jobs Report:
Tomorrow’s jobs report holds the spotlight, presenting investors with insights into the current state of the labor market. As we approach the opening bell, there are three possible scenarios that could arise from the report.
a) A Hot Economy: A strong jobs report reflecting robust employment figures could ignite optimism in the market. This outcome may increase the likelihood of a Federal Reserve interest rate hike, as a hot economy often warrants tighter monetary policy. Such a development might impact market sentiment and potentially influence stock prices.

b) A Cooling Economy: Alternatively, a disappointing jobs report suggesting a slowdown in employment growth may raise concerns about the overall health of the economy. This could cast doubt on third-quarter earnings projections and potentially lead to market volatility.

c) A Goldilocks Number: The middle ground between a hot and cooling economy is what investors often refer to as a “Goldilocks number.” This scenario represents an economy that is strong enough to inspire confidence but not so overheated as to necessitate immediate action by the Federal Reserve. A Goldilocks number may provide stability to the market, but it still requires careful monitoring.

Investor Behavior: Shifting Focus in AI Stocks:
While keeping an eye on economic data is crucial, it’s also essential to pay attention to investor behavior and evolving market trends. Recently, there have been indications of investors moving away from call chasing in AI (Artificial Intelligence) stocks and opting for protective measures instead. One notable indicator to watch is the T3 SPY SKEW index, which has reached its highest levels since 2021.


The T3 SPY SKEW index tracks the premiums investors are willing to pay for protection in the options market. A higher index value implies increased demand for downside protection, indicating a growing sense of caution among investors. This shift in sentiment could reflect concerns about potential market volatility or a desire to mitigate risk in uncertain times. As we enter the summer season, it is worth keeping an eye on this trend to gauge how investors are positioning themselves.

Conclusion:
Before the opening bell on June 1st, investors should pay close attention to the economic data and the potential implications of the jobs report. The outcome could either signal a strong economy, a cooling economy, or a Goldilocks scenario, each with its unique impact on market sentiment. Additionally, the growing trend of investors seeking protection, as reflected by the T3 SPY SKEW index, highlights the need to monitor market dynamics and adapt investment strategies accordingly.

As the trading day begins, remember to approach the market with a well-informed perspective, keeping these key factors in mind. Stay proactive, stay informed, and navigate the opportunities and challenges that lie ahead.

 

Here’s what else you need to know today:

  • Debt-Limit Deal Passes the House, Easing US Default Concerns The House of Representatives passed a bill to raise the debt ceiling by $480 billion, averting a potential default on U.S. debt. The bill now goes to the Senate for consideration.
  • Stocks Climb on Debt Deal, Softer Inflation Data U.S. stocks rose on Wednesday after the House passed the debt ceiling bill and after data showed that inflation in the euro area eased in May. The S&P 500 index rose 1.4%, the Dow Jones Industrial Average rose 1.2%, and the Nasdaq Composite index rose 2.1%.
  • AI Stock Rally Stalls as Nvidia Drops Back Below $1 Trillion The rally in artificial intelligence stocks stalled on Wednesday after Nvidia Corp., the largest AI chipmaker, fell back below $1 trillion in market capitalization. Nvidia’s stock fell 5.7% after the company reported disappointing revenue guidance.
  • Euro-Area Core Inflation Eases But Won’t Stop ECB Raising Rates Inflation in the euro area eased to 8.1% in May from 8.6% in April, but the European Central Bank is still expected to raise interest rates in July. The ECB has said that it will raise rates by 25 basis points in July, but some economists believe that the ECB may need to raise rates by 50 basis points to combat inflation.