This Early Warning Sign Shows That All Is Not Well

Stocks can rally on bad news, or they can fall on good news. The news isn’t as important as how it compares to expectations.

On Friday, the employment report for September will be released. This report often moves the stock market. On average, daily volatility is three times more than normal.

But not all employment report days see large moves. The big days tend to follow unexpectedly good or bad data.

Stocks can rally on bad news, or they can fall on good news. The news isn’t as important as how it compares to expectations.

This month, analysts are expecting a small gain in employment and no change in the unemployment rate. Payroll tax receipts growth confirms that outlook. Given the data, there’s likely to be little movement on Wall Street this week.

Stocks can rally on bad news, or they can fall on good news. The news isn’t as important as how it compares to expectations.

(Source: Mathematical Investment Decisions)

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Payroll taxes are a leading indicator of the unemployment rate. When businesses hire more workers, they pay more taxes. Declines in hiring, or replacing high-wage workers with lower-paid workers, result in less money for the government.

The growth rate of payroll taxes started declining even before hurricanes destroyed businesses in Texas, Florida and Puerto Rico.

For now, there is no sign of a recession. But this indicator could be an early warning sign that all is not well.

It’s important to watch the economic news. In the long run, that will warn us before there’s a bear market.

In the short run, stocks have run up pretty fast in the past month. Like a runner after a sprint, they need a rest. Friday could be a day for stocks to rest after the employment report shows the economy is growing slowly.

Next week, after reading the details of the report, the uptrend in stocks should continue.

Regards,

Michael Carr, CMT
Editor, Peak Velocity Trader

  • Pegah Mozafari

    It always amazes me how such predictions are articulated from both sides of the mouth.. :)-
    e.g.
    > “t’s important to watch the economic news. In the long run, that will warn us before there’s a bear market.”

    Ok.. sure.. of course…its like saying, it is important to watch the sky, because in the long run, that will tell us whether it is raining or not.

    > For now, there is no sign of a recession. But this indicator could be an early warning sign that all is not well.
    > Friday could be a day for stocks to rest after the employment report shows the economy is growing slowly.
    > Next week, after reading the details of the report, the uptrend in stocks should continue.

    So…. which is it? :)-

    Its like saying: When you leave home in the morning you may run into an accident …look for signs… If you see early signs that there have been other accidents, then all may not be well…:)- If not – well.. there is a chance you can get into an accident. But perhaps not.. and you can get to where you want with no accident… just be careful and drive safely. :)-

    Yup Ok… sure…..
    LOL

  • Michael Carr

    What I am saying is “up, then down.” No intent to speak out of both side of my mouth. There is a surge higher underway and then a devastating decline will follow. So watch for signs of the decline because of it will be life changing. But, don’t act too soon because the rally could also be life changing. Economic data is important to watch, especially the high-frequency data series since these will show the first signs of weakness. Thank you for the chance to address your well-founded concern.