Stocks Today: S & P 500 rises with Dow, weak jobs report alleviates interest rate concerns

U.S. stocks rose on Friday as unexpectedly weak employment data in July pushed U.S. bond yields lower and alleviated market concerns about the Federal Reserve's interest rate hike in September.

As of 10:49 a.m. ET, the S & P 500 index rose 0.5% to close to an all-time high; the Dow Jones Industrial Average rose 118 points, or 0.2%; and the Nasdaq Composite Index rose 1%. This round of gains benefited from strong macroeconomic support, but market positions are becoming extremely optimistic. Record volume of call options on the S & P 500 index, coupled with extreme readings on the volatility term structure, suggests growing confidence among investors that stocks will continue to rise.

Weak jobs report gave stocks a boost to interest rates.

The U.S. Bureau of Labor Statistics reported on Friday that non-farm payrolls fell by 23,000 in July, and the unemployment rate remained around 4.1%. Employment data for May and June was also revised down by a combined 103,000, further evidence that recruitment momentum has slowed. Bond investors responded quickly, with the 10-year U.S. bond yield falling to 4.60%, then rising back to around 4.65%, while the two-year U.S. bond yield briefly hit 4.15%. Lower yields help support stock valuations, especially for large technology companies whose valuations are highly dependent on expected future earnings. According to Reuters, weak employment data lowered market expectations for the Federal Reserve to raise interest rates in September, pushing stock and bond markets higher simultaneously.

S & P 500 call options volume shows unusually optimism

Option holdings provide the clearest signal yet that market optimism has reached its limit. A Bloomberg chart showed that trading volume of S & P 500 call options exceeded 4 million contracts on Tuesday, setting a record. At the same time, the ratio of calls to puts reached its third-highest level in 15 years. This does not guarantee that the market will rise further. Call options can be used for complex strategies and hedging, so high volume does not automatically mean directional predictions. Still, the surge in volume suggests that demand for upside risk exposure has reached extremely extreme levels as the S & P 500 approaches historical highs.

The Nasdaq 100 Index held steady above key technical support levels

The technology sector remained one of the strongest performing areas on Friday. In early trading, Nvidia rose 1.9% and Broadcom rose 1.2%, pushing the Nasdaq index to outperform the Dow. As of 11:08 am EDT, the index was at 29,574.25 points, up 0.68%, well above its 50-day index moving average of 28,881.72 points. The relative strength indicator on the 14th was close to 56, indicating positive momentum, but did not touch above 70, which is usually considered overbought. The current direct test is the 30000-point mark, while approximately 28882 points near the 50-day moving average provide an important area of lower support.

Dow trend remains bullish, but resistance looms

Judging from the daily chart, the Dow is still in a broad rising channel, although prices are again close to areas where gains have been blocked previously. Thursday's chart showed the Dow approaching 53968, above its main short-and long-term moving averages. About 53651 points near the 10-day moving average is the first support area, followed by about 53174 points near the 21-day moving average. Analysis pointed out that the index encountered resistance near the upper trajectory of the rising channel. If we continue to break through recent highs, it will strengthen the bullish structure; while another obstruction may lead to consolidation, but it will not necessarily break the broader upward trend.

VIX term structure warns investors not to take it lightly

Volatility markets provide the main counter-view to the current bullish landscape. One chart shows that the VIX/VIX3M ratio is close to 0.81, which means that the recent implied volatility is well below the three-month volatility, creating a steep futures premium structure. The ratio's repeated appearance around 0.80 is seen as a sign of market complacency and could signal higher volatility later. This should not be seen as a stand-alone sell signal, but when combined with record volume on call options, the reading becomes even more dramatic. Overall, the S & P 500 and Dow Jones have shown a constructive but increasingly crowded pattern. Falling U.S. bond yields, strong momentum in technology stocks and weakening concerns about the Federal Reserve's tightening policy have all benefited the stock market, while options holdings and volatility markets show that investor confidence is already high. The next big test will come on Wednesday, August 12, when the Bureau of Labor Statistics releases July consumer inflation data at 8:30 a.m. ET.