Dow Jones: Strong Payrolls Send the Dow Lower Ahead of CPI and PPI

Dow Edges Lower as NFP Data Weighs

The Dow Jones Industrial Average settled at 53,414.25 on Friday, down 272 points or 0.5%. The Labor Department reported 162,000 new jobs for August, three times the street estimate near 55,000, and rate-hike bets jumped before the morning was over. Thursday’s relief rally lasted exactly one session. The index closed inside Thursday’s range, trapped between a resistance zone and the 50-day average with the trend still unresolved headed into Labor Day.

Dow’s Inside Move Leaves the Trend Unresolved

The Dow settled lower on Friday while posting an inside move. The price action suggests investor indecision and impending volatility. It’s too early to tell if the market is transitioning from bullish to bearish.

The main trend turned down earlier in the week when the market took out the previous swing bottom at 52,754.90. However, there was not follow-through to the downside and a new main bottom was formed at 52,691.31. The subsequent two-day rally to 53,746.50 has put the market in a position to change the trend back to up. A trade through 53,819.65 will change the main trend to up, with the all-time high at 54,744.33 the new upside target.

Part of the reason for the choppiness is a pair of retracement zones with one providing support at 53,143.20 to 52,765.33 and the other providing resistance at 53,717.82 to 53,960.08.

Looking back, in hindsight, it looks as if the 50-day moving average at 52,941.77 exerted more influence on the Dow than the swing chart. Although sellers briefly pierced the 50-day MA on the way to 52,691.31, buyers quickly recovered and the rally commenced.

A sustained move over the 50-day MA is likely to continue to provide the upside momentum needed to reach a new record high. If the 50-day MA is violated with conviction and heavy selling volume, there could be a quick break into the intermediate retracement zone at 52,326.70 to 51,756.14.

162,000 Jobs Killed the Hold Trade

June and July hiring totals were revised higher on top of the headline beat and the unemployment rate held at 4.1%. Rate-hike odds for September jumped and Treasury yields moved with them before the first hour was done.

One day earlier, a Fed official had floated the idea of holding steady if the next inflation reports come in calmer. That comment gave stocks a one-day rally Thursday. Friday’s number made it irrelevant.

Warsh has been saying prices are too high. A payroll number that strong gives him cover to move at the September 15-16 meeting without worrying about the labor side. Oil rose again Friday, which only makes the inflation argument harder for the doves to fight. CPI and PPI land next week and those prints are the last data the Fed sees before September 16.

Software and Consumer Names Led the Dow Lower

Consumer stocks and healthcare lagged the session. Software sold off broadly. Chipmakers and some industrials held up better. Gold slipped on the firmer rate outlook.

Oil rising on top of a hot jobs number is the combination nobody on the long side wanted to see Friday. Chevron finished lower on the day, so the market was not treating higher crude as an energy win. It was pricing it as more inflation. The S&P 500 and Nasdaq Composite both closed lower but held up better than the Dow. For the full week, the major indexes were roughly flat after rate fears, a midweek bounce, and Friday’s reversal washed each other out.

Caterpillar Was the Best Dow Name, Apple the Worst

Caterpillar led the index, climbing about 1.7% as construction and heavy equipment kept finding buyers. Honeywell and Home Depot each gained close to 1%. Boeing advanced. Nvidia and Cisco finished higher. Sherwin-Williams, 3M, IBM, and Goldman Sachs posted smaller gains.

Apple fell about 2.5% and did the most damage to the price-weighted average. Microsoft dropped roughly 2%. Salesforce slipped nearly as much. Disney, Amgen, and McDonald’s each lost more than 1.5%. Travelers, Merck, Chevron, and Walmart finished lower. Johnson & Johnson, Alphabet, American Express, and Visa declined. The gains in the industrial names could not offset the damage from the high-priced tech and consumer losers.

CPI and PPI Are the Last Call Before September 16

Warsh got his number Friday. Payrolls at 162,000 with upward revisions, oil climbing again on the same session, inflation still running above target. The labor market is not a reason to wait anymore. CPI and PPI next week are the last prints before September 16 and those numbers now carry all the weight.

The 50-day moving average held this week when sellers tested it and that level is doing more work than the swing chart. Friday’s inside bar stayed below resistance. The Dow needs the inflation data to clear the calendar before this range resolves, and the 50-day is where the risk sits if sellers come back with volume after the holiday.

More Information in our Economic Calendar.