EB Daily Market Report - Wednesday, January 8, 2025

Stock Market Closed on Thursday

Just a quick reminder that the U.S. stock market is closed on Thursday to honor former President Jimmy Carter, who passed at 100 years old last week. We will be back with our next Daily Market Report on Friday as a result.

Executive Summary

• Our major indices were down overnight, but turned more favorable this morning
• Small caps (IWM, -0.68%) lagged at the opening bell and has lagged throughout the day as our other major indices opened flat and are slightly lower into the final hour of trading
• The 10-year treasury yield ($TNX) is down fractionally today after testing critical short-term yield resistance at 4.70%
• All eyes will be on Friday's big nonfarm payrolls report to determine if treasury yields are likely to move higher
• Commodities are mostly higher as gold ($GOLD, +0.41%) rises to sit squarely on its 50-day SMA
• Defensive and value-oriented areas of the market are mostly leading today, with 7 sectors higher and 4 lower
• Medical equipment stocks ($DJUSAM, +1.95%) are strong on the session with Boston Scientific (BSX, +4.49%) breaking out to lead the group
• Meanwhile, renewable energy ($DWCREE, -3.96%) stocks have fallen back to test their rising 20-day EMA after showing strength recently

Market Outlook

We have two key levels of yield resistance that we need to watch closely in 2025. The first, at 4.70%, is upon, while the other, and more prominent, is at 5%. Check out both of these levels on the following multiyear chart on the 10-year treasury yield ($TNX):

I don't have the EXACT level on the TNX at which many stock market participants will gravitate away from stocks and into bonds, but a move above 5% on the TNX would be tempting. I always view the 5%-6% area as where it's no longer worth the risk to be in stocks. The only exception would be if the TNX is being driven higher due to rising inflation expectations. A 5% or 6% yield may not be so great if inflation were to move back towards 4%-5% or higher.

Sectors/Industries

One very interest-rate-sensitive area of the market subject to the short-term movements of the TNX is home construction ($DJUSHB):

The AD line above has been tumbling for several weeks now as yields rise. Relative strength also has been abysmal. But, price action has hit a major area of price support at 2300. You can see above that this level of price support has been tested on 3 different occasions over the past year. If nonfarm payrolls come in hot on Friday morning, expect the TNX to break above 4.70% yield resistance and the DJUSHB to fall below 2300 price support. I believe the TNX will fail to break out above 5.00%, if it gets there. Accordingly, I wouldn't be surprised to see a bottom in the DJUSHB soon, possibly as early as today if nonfarm payrolls are at or below expectations on Friday.

ChartLists and Trading Strategies

The big risk of trading right now is that we could see just about anything on Friday morning, in terms of a gap up or gap down. So just please understand that longs or shorts will carry considerable risk ahead of that nonfarm payrolls report. I believe holding positions overnight is a big gamble for short-term traders of daytraders.

I like using the current weakness to buy leading stocks within industries, IF they are trading down recently and are at or very near key price or moving average support. Stocks testing 50-day SMAs for the first time in several weeks or months would be a solid example.

Upcoming Earnings

Wednesday, January 8 (after market close):

JEF, PSMT, GBX

Thursday, January 9 (before market open):

None

Economic Reports

December ADP employment report: 122,000 (actual) vs. 134,000 (estimate)

Initial jobless claims: 201,000 (actual) vs. 216,000 (estimate)

FOMC minutes released at 2:00pm ET

Happy trading!

Tom