I expect we will be tip toeing through the tulips today. Strong labor market conditions should serve stocks (NYSE: SPY), but trepidation is to be expected still two days ahead of the Fed Chair testimony before Congress.
The Labor Market Conditions Index, due at 10:00 AM EDT this morning, provides a comprehensive measure of the labor market. It's a Fed creation, so you better bet your bottom dollar it matters to the Fed. If it matters to the Fed, it had better matter to market enthusiasts. Its indication on the health of the economy is important, and positive currently. However, as labor market conditions improve, so does the likelihood of compensation inflation. Where a strong economy justifies Fed tightening policy, inflation likely speeds the pace and trajectory, and threatens stocks (NYSE: VOO).
I believe this specific report, today, serves investors' perspective of economic health more directly and is more likely to serve stocks (NYSE: IYY) than to hurt them on any good news. This data will be your most important market driver today if investors know what is good for them. I expect it should serve the continuation of equities' (Nasdaq: QQQ) climb, if only investors weren't so wary of the upcoming Fed Chair testimony on Wednesday.
Last month, the Labor Market Conditions Index climbed to a better than expected mark of 3.5. This month, economists expect a reading of 1.8.
Monday also provides the TD Ameritrade Investor Movement Index (IMX). The IMX measures Main Street, where State Street's ICI measures Wall Street. Take from it what you may, but it seems the IMX measure should be reviewed with a skeptical eye and from a contrarian perspective. That is because Main Street is notorious for getting greediest latest in the game, and for panicking near market bottoms. There is no forecast available for the index, but it measured 6.13 for May.
At 3:00 PM EDT, look for the Consumer Credit data for the month of May. So what do you think happens to consumer credit when big banks are cleared by the Fed to do what they want with their capital? And, how do you think banks will go about their business with a new president who is cutting red tape and regulations? Yes, consumer credit will continue to expand, and probably at a faster pace than previously. Credit expansion slowed to $8.2 billion in April, but economists expect it will widen by $14.6 billion in May.
San Francisco Fed Bank President John Williams will be speaking in Sidney, Australia, today. What he has to say about fostering sustainable growth in the U.S. will find its way back to the newswire here at home, but it won't get here until tomorrow...
Corporate earnings season really gets going on Friday with the data from the big banks (NYSE: XLF). Still, today, look for data from Alliance One International (NYSE: AOI), Bank of the Ozarks (Nasdaq: OZRK-OLD), Barracude Networks (NYSE: CUDA), Century Bancorp (Nasdaq: CNBKA), Healthcare Services Group (Nasdaq: HCSG), Helen of Troy (Nasdaq: HELE) and WD-40 (Nasdaq: WDFC).
In conclusion, expect trepidation from market participants as we approach the Fed Chair's testimony before Congress. Still, today's Labor Market Conditions data is critical for investors. A strong labor market offers justification for recent Fed action, as did last week's economic data. However, compensation inflation may soon follow, and that may require a faster pace from the Fed. I still expect strong labor market data to serve stocks today, if only the Fed Chair weren't still haunting investors. For more of my regular work on the market, readers may follow the column here at Seeking Alpha.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.