Stocks Closed Higher Ahead Of This Morning's Employment Report  Image: Bigstock Stocks closed higher again yesterday. That makes it 2 days in a row for the Dow. And 4 days in a row for the S&P and Nasdaq. And they are all on pace to close higher for the week. This morning's Employment Situation Report could influence whether we see that happen or not. Nonfarm payrolls are expected to come in at 270,000 (228K in the private sector and 42,000 in the public), with the unemployment rate holding steady at 3.6%. We'll also get a look at Wholesale Inventories and Consumer Credit. But the jobs report, by far, is the main event. The steep drop in energy prices over the last several weeks (yesterday notwithstanding), as well as other commodities, suggests inflation may have peaked. There are plenty of other issues to contend with, including supply chain disruptions. But rising food and energy prices has been a big contributor to headline inflation. And the pullback we're seeing there definitely bodes well for softer inflation numbers moving forward. And if inflation starts to recede, that could mean the potential for a lower interest rate target. The Fed remains committed to bringing down inflation. And they are still expected to raise rates by another 50-75 basis points at their next meeting on July 26-27. But they may not have to hit their projected 3.4% by year's end if inflation falls more than expected and faster than expected. And that's one of the reasons why stocks are rallying off their lows. The market was pricing in a worst-case scenario, i.e., a hard recession.
But if it turns out to be softer and shorter, the market will need to reprice stocks much higher than where they are currently. As it stands now, valuations are at more than 2-year lows. And with forecasts for a strong second half (full-year GDP is expected to come in a 1.7%), stocks could soar as traders switch their focus from recession to growth. That's especially true now, given that earnings season is starting, since stocks typically go up during earnings season. And that bodes well for stocks in the weeks to come. Best,  Kevin Matras
Executive Vice President, Zacks Investment Research | 
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