Reversion to The Mean Sends Markets Soaring

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Alex Partida

Jan 06th 2023  .  4 min read

Reversion to The Mean Sends Markets Soaring

Wall Street was eagerly awaiting the release of two key economic indicators before the start of trading today: Nonfarm Payroll (NFP) and Unemployment Numbers. Both reports were positive catalysts for the market, setting the tone for the rest of the day. As investors digested the data, it became clear that the economy is showing signs of continued growth and strength. With these encouraging figures in mind, it’s no wonder the market responded positively to the news.

NFP numbers at 8:30 a.m. Eastern started the short-term sentiment shift in the market by beating the expectations of 200,000 jobs for December. Statistics showed 223,000 new jobs were created in the month, beating the median forecast by 23,000. This job increase reduced the unemployment rate to 3.5%, exceeding the expected 3.7%. 

The positive NFP and unemployment numbers have provided a short-term boost to the market and changed the negative sentiment that had been mounting. This is partly because Federal Reserve officials had previously expressed concerns about the tight labor market leading to inflation, which could result in further rate hikes throughout the year. Therefore, these reports indicating signs of the labor market possibly beginning to loosen up are welcome news for the market. 

In the short term, the improving labor market has helped to strengthen investor confidence and contribute to the overall positive market reaction.

Opening Bell Brings Buying

Once the opening bell sounded, there was some quick profit-taking after a spike created by the pre-market economic data. After the selling had stopped, it would be done for the day. Buying pressure began accumulating, bringing the S&P 500 futures to the first test of resistance at 3,850. When the market approached this level, it quickly blew through, showing early signs of continued strength.

After the release of the positive economic data, the market saw a brief period of profit-taking at the opening bell. However, this selling soon subsided and was followed by an accumulation of buying pressure, pushing the S&P 500 futures up to their first test of resistance at 3,850. The market’s quick breakthrough of this level showed early signs of continued strength, indicating that investors are confident in the current economic climate. As the day progressed, it became clear that the positive data releases had set the tone for the market and that the economy’s strength was driving investor behavior.

Two stocks leading the recent sell-off, Tesla (TSLA) and Apple (AAPL), ended up helping to drive the market higher today. Despite starting off significantly negative, Tesla was able to rally and end the day with a gain of over 2%. Apple also contributed to the Nasdaq’s strong performance, with a gain of nearly 4% at its highest point of the day. It’s worth noting that the Nasdaq has been weaker than other indices recently, so its ability to lead the charge higher is a positive sign for the market. Overall, the market was lifted by the positive economic data releases and the strength of tech giants like Tesla and Apple. 

The S&P 500 futures have been trading within a range of 3,800 to 3,900, leading some to question whether we would see a breakout to the upside. As the indexes moved in tandem, sustained buying pressure helped to answer that question with a resounding “yes.” At its highest point of the day, the S&P 500 futures reached 3,928, breaking out of the previously established range and signaling continued strength in the market. The positive economic data releases and strong performances from tech giants like Tesla and Apple contributed to this upward momentum, and investors seem confident in the current economic climate.

Significant Economic Catalysts 

Next week brings two significant events that traders and investors will want to keep an eye on. Federal Reserve Chairman Jerome Powell will be speaking in Germany on Tuesday at 9 a.m., and the U.S. Consumer Price Index (CPI) data will be released on Wednesday at 8:30 a.m. Eastern. These events have the potential to impact the market, so it’s important to stay informed and be ready to respond to any developments. Powell’s comments could provide insight into the Fed’s current stance on monetary policy, while the CPI report will give us a sense of inflationary pressures in the economy.

Nasdaq led the first strong rally of 2023

The Nasdaq and the S&P 500 were negative to close the session. The S&P 500 futures closed up 2.20%, rising 84 points, while the Nasdaq futures closed up 2.61%, an increase of 285 points. The Dow Jones futures followed, closing up 2.11%, adding 698 points.