This morning the Labor Department released the July non-farm payroll report and the major stock indexes have reacted very negative initially. This morning the SPDR S&P 500 ETF (NYSE:SPY) is trading lower by $1.06 to $111.78. While this is a major decline before the opening bell often the stock market has a way of trading near the unchanged level by the end of the session on a Friday. We call this the ‘Friday Effect’.
What is the cause of this Friday activity? Generally the major institutions that can move markets rarely want to cause fear in the U.S. consumer ahead of the weekend. This is when the public will spend money. Remember, U.S. consumer spending accounts for 70 percent of the gross domestic product. The major institutions that also move markets rarely want to spook or scare the Asian markets over the weekend. Remember China is the growth engine of the world. As we all know by know when the Shanghai Index rallies the rest of the markets around the world rally. The same case can be made when the Shanghai Index declines the rest of the world markets decline. Believe it or not the Chinese are now the leaders of the world.
This morning many commodity stocks are holding steady as the U.S. Dollar Index has declined. Freeport McMoRan Copper & Gold Inc (NYSE:FCX), and United States Steel Corp (NYSE:X) are both trading higher on the trading session. When these stocks are positive rarely will the markets decline sharply lower. Therefore, the ‘Friday Effect’ has a good chance to play out again.
Nicholas Santiago
Chief Market Strategist
www.InTheMoneyStocks.com
