Major Moves

The Bureau of Labor Statistics (BLS) pleasantly surprised traders this morning when it announced that the U.S. economy created 224,00 new jobs during June. This number was well above the analyst consensus of 162,000 and is further evidence that the BLS nonfarm payroll number and the ADP nonfarm payroll number don't always line up.

Traders took note on Wednesday when ADP announced that the economy had only created 102,000 new jobs, but they didn't hold back from pushing stock indexes to new all-time highs. They have learned that, just because the ADP numbers are either positive or negative, this doesn't guarantee that the BLS numbers are going to be as well.

Today's BLS number is considered a bullish one because traders typically look for job growth above 200,000 to signal strength in the U.S. economy. Traders typically buy stocks when they see bullish numbers like these because they know more jobs lead to more money in consumers' pockets, which typically leads to more consumer spending and higher corporate revenues and earnings.

However, traders also know that more money and more consumer spending can also lead to greater inflation – something the Federal Open Market Committee (FOMC) says it is watching closely as it makes its determination on future monetary policy. This is likely one of the reasons we saw some profit taking, instead of increased buying, in the market today.

Interestingly, even though the number of new jobs that were created was higher than expected, the overall unemployment rate actually ticked higher. Unemployment increased 0.1% from 3.6% to 3.7% during June. Although this may seem like a troubling move, it is an encouraging sign. It shows people are confident enough about the future of the U.S. economy to get back out into the job market.

Chart showing nonfarm payroll numbers
U.S. Bureau of Labor Statistics

S&P 500

The S&P 500 took a small profit-taking hit early this morning as traders came back from the Independence Day holiday, but it didn't last long. While the index didn't break to any new highs, the S&P 500 was able to hold its own, falling 0.18% to close at 2,990.41.

Fossil Group, Inc. (FOSL) and Southwestern Energy Company (SWN) were the top performing stocks in the index – gaining 3.80% and 3.51%, respectively. Electronic Arts Inc. (EA) and IPG Photonics Corporation (IPGP) – the two worst performers in the S&P 500 – balanced out those gains by dropping 4.60% and 4.32%, respectively.

Overall, it was a fairly balanced day with just over three-fifths of S&P 500 components losing ground.

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Chart showing the performance of the S&P 500 Index

Risk Indicators - VIX

Implied volatility levels on Wall Street dropped to their lowest levels since mid-April today. Implied volatility is a measure of the expected volatility the market is going to experience in the future. For instance, if investors believe the stock market is going to make a large move in the future, they will push implied volatility higher. Conversely, if investors believe the stock market is not going to make a large move in the future, they will push implied volatility lower.

The CBOE Volatility Index (VIX) is an implied volatility index. It measures how concerned investors are that the S&P 500 is going to make a large move – typically to the downside – in the future.

When the VIX climbs to higher levels, like it did in early May, it indicates that investors are concerned the S&P 500 may move significantly lower in the future. When the VIX drops to lower levels, it indicates that investors are comfortable in the stability of the S&P 500 and aren't preparing for a dramatic drop.

That's why today's drop is an encouraging sign for the bulls on Wall Street. For the first time since mid-April, the VIX dropped to 12. The VIX didn't close at 12 though. Instead, it bounced up off support. This confirms the profit taking we saw on the S&P 500 chart, but it is too early to say traders are worried the profit taking will continue.

Read more:

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Chart showing the performance of the CBOE Volatility Index (VIX)

Bottom Line – Waiting Until Earnings Season

Wall Street is incredibly optimistic right now, but traders are nervous that something could wake them from their blissful bullishness. Right now, their biggest concern is the upcoming earnings season, but we all know that the shocks can come from a variety of places.

For now, I anticipate more consolidating until the major financial institutions start reporting earnings on July 16.

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