May 8, 2015
Reassuring labor market data sparked a major rally on Friday and helped most of the leading benchmarks overcome steep losses earlier in the week to end modestly higher. On Wednesday, Fed Chair Janet Yellen appeared to derail those hopes by opining that “market valuations at this point generally are quite high,” which might lead to “potential dangers.” She qualified her remarks by stating that there was no evidence of new bubbles forming in asset prices and that risks to financial stability were “moderated.” Friday’s payroll data painted a different picture, however. The Labor Department reported that employers had added a healthy 223,000 jobs in April, and the unemployment rate ticked downward to 5.4%.
Since stock prices were pushed radically higher today, we here make a bold prediction that major indexes will observe significant dips on Monday. We have seen in last month that a favorable payroll report could in fact hurt equity market. We think it is reasonable that the market will adjust its position after investors weight in this report and Yellen’s comment over the weekend.