Traders are betting that “JJ” will be under real pressure to cut rates IF the labor market unravels. Meanwhile, gold has been on a tear as the ultimate safety trade, but it’s also experiencing a bit of back and forth trading. And while the tone is better for the S&P 500 Index (SPX), we know how fast that can change, explains Kenny Polcari, chief market strategist at SlateStone Wealth.
Let’s be clear: The labor market is NOT unravelling yet. Unemployment remains at historic lows (currently 4.2%) and initial jobless claims are declining, not increasing. So, when is the labor market going to unravel? And what is the definition of unravel? 4.5%, 5%, 6%?
(Editor’s Note: Kenny is speaking at the 2025 MoneyShow Masters Symposium Miami, May 15-17 at the Hyatt Regency Miami. Click HERE to register.)
The concept of a labor market “unraveling” is subjective and not precisely defined in economic terms. But it typically implies a significant deterioration, where job losses accelerate, layoffs spike, and economic confidence plummets, often signaling or coinciding with a recession.
SPX, GLD (YTD % Change)
Data by YCharts
With gold, it was up $50 one day last week, then down $50 the next. This happened as the same buyers that took it higher looked for someone else to take them out of their very expensive positions. My sense is that if “something” happens -- meaning if we get more of a definitive announcement on trade or rates or the tax bill – then stocks will rally and gold will retreat.
The $3,200 level would not be out of the question. If that doesn’t hold, then a retreat to the trendline ($3,080) would be the next stop. Remember: They took gold up more than 30% in four months. That’s like a disaster scenario…and we are not in a disaster situation.
As for the S&P, it recently traded around 5,484. A look at the charts reveals gaps all over the place – because of all the volatility suffered over the past month. These will need to be filled before they all settle down.
So, do not expect it to be all a bed of roses yet. While the tone is better, we know how fast that can change. Stick to your plan and remain resilient. We remain in the 4,835 (lows of April) / 5,658 (trendline resistance) trading range.
