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Weekly Market Observations: Jobs Report, Volatility, and Energy

By:Ryan Grace

When taking a look at recent top performers in the energy sector, we see Devon Energy (DVN), Baker Hughes (BKR), and Marathon Petroleum (MPC) all leading the pack with gains over 10% in the past month.

Maybe Inflation Doesn’t Matter…

Jerome Powell threaded the needle during his opening remarks at the Fed’s Jackson Hole economic summit last week, reiterating the central bank’s view that inflation is mostly transitory, while providing no clear timeline for when the Fed will taper its $120 billion of monthly bond purchases. (It could be by the end of this year.) Instead, the Fed has emphasized its focus on the on-going labor market recovery. Which in my view, has always been the real barometer for when we might see a policy shift.

So again, all eyes are now on this week's jobs report. A better than expected number Friday (9-3), could shift the dovish narrative and lead to a bout of volatility across assets. As we wait with bated breath, the consensus view is for the U.S. to have added around 650K jobs in the month of August, against 943K jobs added in July. 

The labor market is recovering, albeit slower than expected, as we’ve seen the pace of jobs added increase m/m from 278K in April 21 to 943K as of most recently. Additionally, with jobs coming in better than expected over the past two months, even in the face of resurgent COVID cases, there’s the potential for a print above the elusive 1 million level. Should this happen, Jerome and company might start thinking differently.

U.S. Non-Farm Payrolls

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Speaking of Volatility… 

Realized vol in the S&P 500 has started to pick itself up off the mat after collapsing throughout most of August. 

Don’t let the lack of both real and implied volatility fool you into thinking there’s no risk in this market, as we’re starting to come off of realized volatility levels that have historically been cycle lows. Check out the table below for a bit more context around these volatility levels and market expectations for the week.

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Sector Performance: Can energy catch up?

Finally, will energy stocks catch up to this week’s 5% rip in RUT and new all-time highs in SPX and NDX? 

We ended the week with an almost 1% drop in the dollar index, while oil bounced 11% and natural gas jumped by 14%. Should the energy market look past this recent COVID related growth scare, there could be opportunities within the energy sector, which has significantly lagged the rest of the market on both a 1-month and 3-month basis. Below we’ve included a sector performance update as well as where we're seeing bullish momentum among some of the top performing companies in the XLE ETF.

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Energy Sector ETF Top Bullish Momentum

When taking a look at recent top performers in the energy sector, we see Devon Energy (DVN), Baker Hughes (BKR), and Marathon Petroleum (MPC) all leading the pack with gains over 10% in the past month.

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