Investors’ focus turns away from Fed speak and closer to Friday’s jobs report for clues

Published Thu, Oct 6 20221:21 PM EDT

This is the daily notebook of Mike Santoli, CNBC's senior markets commentator, with ideas about trends, stocks and market statistics. Market so far allowing the ripping two-day new-quarter rally to hold up as everyone awaits a consequential monthly jobs report. The initial assessment of the retest of the June low and snapback rally suggests it's a respectable showing with a decent chance of proving meaningful, but more must be proven. The honest take in these moments always sounds equivocal and wishy-washy, but this is a game of shifting probabilities and the start of yet another bear-market relief bounce looks indistinguishable from the climactic low and start of a new uptrend. S & P 500 still looking up at the 3,800-ish level bulls hoped would hold on the way down, so plenty of work left to do. But the slight undercut of the June low was "close enough" as retests go and some boxes were checked off: sentiment was worse but the number of new lows not as bad, smaller stocks held up a bit better versus large, and the breadth on the rally was stupendously strong. The index needs to show more sustained momentum, but there was a decent show of real demand at about 3,600, the down-25% level from the peak, with a lot if not all Federal Reserve/earnings erosion priced in and equity positioning very defensive. For multi-year equity horizons, buying the market down 25% has been an OK strategy, even if a nasty ride to new lows awaits. Speaking of positioning, the National Association of Active Investment Managers' equity exposure index bounced from multi-year lows, but it's still below neutral readings. It's supportive, but not a screaming contrarian buy signal any more. Energy stocks continue to act as staunch leadership, well outperforming crude oil. Some of this is natural gas. Some of it is decent cash flows at these oil prices. Some is simply the scarcity of companies with earnings estimates rising. But maybe, just maybe, it's becoming a crowded trade? Fed speak remains pretty consistent: No declarations of victory on inflation will come soon, and rates need to get and stay above 4%. They absolutely must and will speak this way until the moment they are ready to pause – which will only happen after months of inflation relief and/or a bad market/economic rupture. There's not much news in reiterations, and we are at least closer in time and distance to the Fed's likely target zone, which is a modest plus. The Street wants a decent jobs number tomorrow with jump in participation rate that can relatively painlessly get the unemployment rate up to help the Fed. Bond-market volatility is way too elevated to allow stocks to comfortably lock into recovery mode, so the jumpiness of Fed expectations remain a headwind. The Treasury MOVE Index is more important, in many ways, than VIX. Market breadth is soft. Credit is OK after firming up a lot. VIX is sticky near 30 ahead of payrolls.