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The S&P 500 tumbled -1.5% Friday morning after the monthly employment report beat expectations.
If this reflexive selling felt strange, you are not alone and the stock market spent all Friday rallying back from those opening levels, erasing virtually all of them by the close.
Apparently some investors still believe “good is bad”, but as we saw Friday, the majority of the market doesn’t agree.
Inflation is steering the Fed’s interest rate policy decisions and if the Fed can bring inflation down without crushing employment, all the better. This is the widely hoped-for “soft landing”. Is it possible? Maybe, maybe not, but with inflation headed in the right direction while employment remains robust, that suggests this Goldilocks scenario is still possible.
At this point, the market remains in a half-full mood and that means it is not buying the bearish interpretation of November’s better-than-expected employment. Until something changes, that means the path of least resistance remains higher.
If this market wanted to go down, there have been more than enough excuses to send prices tumbling. The simple fact we remain near multi-month highs tells us the ground under our feet is solid and Friday’s rebound confirms it.
Quite simply, if this market was truly fragile and vulnerable, it would have crashed by now.
Sometimes the hardest thing to do is to stick with a winning trade when everyone around us is telling us why we are wrong. But since we trade the market, not opinion, this counter-intuitive strength is far more important than what anyone else says. The simple fact prices keep going up when the crowd thinks it should be going down is our signal to stick with it.
We will run out of buyers at some point, but this is not that point.
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Jani Ziedins (pronounced Ya-nee) is a full-time investor and financial analyst that has successfully traded stocks and options for nearly three decades. He has an undergraduate engineering degree from the Colorado School of Mines and two graduate business degrees from the University of Colorado Denver. His prior professional experience includes engineering at Fortune 500 companies, small business consulting, and managing investment real estate. He is now fortunate enough to trade full-time from home, affording him the luxury of spending extra time with his wife and two children.
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