The holding pattern continues to hold.

We’re seeing a bit of a selloff this morning, but it’s probably nothing to get too excited about considering how many days the market’s been up recently, and the fact that we have key jobs data tomorrow.

For the most part, people don’t seem to be making big bullish or bearish bets on stocks or bonds ahead of the employment report. Yesterday’s stock market was about as thrilling as watching gray paint dry, with stocks retreating a bit late in the day after coming within range of all-time highs early on. It’s proving tough for the major indices to get back to previous peaks as the market continues to trade in a tight range.

Later today we have a few earnings to watch, including Lululemon (NASDAQ:), Broadcom (NASDAQ:) and Slack (NYSE:). These represent a variety of industries and a lot of interesting individual stories, but there’s really no overriding theme.

Payrolls Dominate Discussion One Day Out

As we noted yesterday, the average Wall Street analyst estimate is that around 700,000 jobs were created in May. But that’s not the full story. April’s 266,000 new jobs was way below expectations, which may have been due to timing issues in collection of the data, so check the bottom part of Friday morning’s Labor Department press release to see if the government revises that upward. Many analysts think it will.

Also, if the headline number for May is as high as 800,000 or 900,000—near the high end of the range of Wall Street expectations—that may be something that raises eyebrows at the Fed, where officials are on the lookout for possible signs of economic overheating that could lead to inflation.

If we get a big number for May combined with an upward revision to April, keep an eye on Treasury yields for possible upward movement. They’ve done basically nothing so far this week, falling below 1.6% for the 10-year note yesterday. Any move toward the recent high near 1.7% might get some of the “growth” areas of the stock market, like tech, a bit nervous.

The other wild card tomorrow is wages. Some companies say they’re having trouble finding workers to fill openings, and last month’s Job Openings and Labor Turnover Survey (JOLTS) report showed openings at high levels historically. The May payrolls report could reveal whether employers are dipping into their wallets to pay more for new workers, something that often can drive up prices.

This morning brought a jobs report of its own, the weekly data. It showed claims dropping to a new post-COVID low of 385,000, down from a revised 405,000 the prior week. It’s interesting to see, but overall just a data point leading into tomorrow’s more important monthly report.

Whatever tomorrow’s employment report says, it’s important not to get too excited one way or another as an investor. One month is never a trend. In fact, since April was weak, even a strong May jobs growth number might not be that conclusive. We might need to see the June data before any trend can be defined. It helps to think in big picture terms when it comes to macro, or else you risk getting caught up in all the weeds.

Fed officials recently made a bit more noise about possibly “talking about talking” about a taper of their $120 billion a month bond-buying program as the economy revives. It’s eventually likely to happen. But they’ve also promised a long runway for the market to find out their plans. It seems unlikely that the Fed would announce a taper at either the June or July Federal Open Market Committee (FOMC) meetings, though you can’t completely rule it out. Instead, some analysts say, the Fed’s annual late August Jackson Hole, Wyoming, conference might start getting more of a look.

So the market might have a knee-jerk reaction to tomorrow’s data and to next week’s consumer price data for May, but that doesn’t mean the Fed will sense more of a need to change anything. They’re starting to telegraph, but there’s probably a long way to go.

Deeper In The Lineup

It’s not so impressive that U.S. equity markets “timidly tiptoed toward new highs” on Wednesday, to quote research firm CFRA’s Sam Stovall. That’s happened many times already this year and last.

What is impressive is how the inched higher without much help from the mega-cap stocks that kept it humming most of the months between last May and early April. Tesla (NASDAQ:) was down sharply Wednesday, Apple (NASDAQ:) barely climbed and Microsoft (NASDAQ:) inched lower.

It seems like we talk about these same suspects a lot around here, but there’s a reason for that. The top six SPX stocks by market cap form around 24% of the SPX’s weighted value, so what they do often has an outsized impact. If they’re not performing (and they haven’t been for most of the last two months), it really tells you something when the index can approach new highs without their help.

Which leads to the question, where is the current strength originating in the SPX? For that, you don’t have to look too much lower. Chipmaker Nvidia (NASDAQ:) and payment companies Visa (NYSE:), Mastercard (NYSE:) and PayPal (NASDAQ:)—all in the top-20 of the SPX by weight—cruised higher Wednesday.

What do they have in common? They’re stocks that tend to do better in a rising economy, where more boats get lifted. By the way, their combined market cap of around $1.5 trillion adds up to well under the market cap of AAPL on its own, which is $2.1 trillion. The combination also comes out below the market caps of either AMZN or MSFT. However, when you have more stocks gaining as the top-weighted ones tread water, eventually the combined power below can help power things along. That seems to be what’s happening, and arguably it’s a positive thing.

Last year, it was the opposite. The so-called FAANG stocks like AAPL and Amazon (NASDAQ:), with help from TSLA and MSFT, often carried the SPX on their back in a rally dominated by companies geared to outperform with people staying home. This year, it feels like a different sector or group of companies is driving gains every day the SPX goes up, and that’s arguably a healthier situation. When the market relies on just a handful of mega-caps for gains, it can often dive when those companies run into trouble. We saw that back in the fall of 2018 when the SPX fell nearly 20% once the FAANGs lost steam.

Without as much FAANG and mega-cap participation this spring, the SPX gains haven’t come as easily. But they’re more widespread, which means there’s opportunity for investors beyond the names that come immediately to mind.

Memes Create A Splash

Though the more traditional names accounted for underlying market strength lately, you can’t ignore the fact that “meme” stocks are starting to explode again. The first ones you might think of are AMC Entertainment (NYSE:) and GameStop (NYSE:), but now Bed Bath & Beyond (NASDAQ:) is part of the frenzy.

BBBY shares skyrocketed an amazing 62% Wednesday after the company announced the early release of new store brands. However, that kind of climb seemed like a bit of a head scratcher even with the good news. In contrast, consider that AMZN announced Wednesday its Prime Day will be June 21-22 and the stock barely moved. Last year’s AMZN Prime Day brought $3.5 billion in sales over just two days. BBBY’s revenue for all of its fiscal 2020 was about $9.2 billion, down 17% from the previous year.

Significant levels of “short interest,” or positions that expect the stock would fall, probably helped lead to the big move in BBBY shares yesterday, particularly if the outsize move forced some shorts to cover their positions.

In early news today, AMC is floating another 11 million shares. After trading up to $72, shares are pointing down in the mid-$50s. Some of the other big memes are also trading lower in pre-market activity.

Lumber Daily Chart.

CHART OF THE DAY: LUMBER WAKES FROM SLUMBER. For the second time in two weeks, front month lumber futures (/LBSN21—candlestick) bounced viciously off the $1,200 (per 1,000 board feet) level (blue line). In commodities, sometimes the cure for high prices is high prices, but lumber has certainly taken a volatile path after its record run in early 2021. What might that mean for homebuilders ($SPSIHO—purple line)? Data sources: CME Group (NASDAQ:), S&P Dow Jones Indices. Chart source: The thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

How to Approach Memes? Carefully: Many investors may be tempted to jump into the “meme” market action, but memes are likely to continue being volatile and potentially difficult to trade. If you’re thinking of getting in, have a plan for getting out. Also, know what you’re getting into. For instance, consider the valuation of a stock like BBBY (which recorded a fiscal 2020 loss) vs. AMZN. If you’re a long-term investor, you have to decide whether a stock like BBBY or AMC fits your long-term objectives or is just a whim because you hate to miss out.

As a final reminder, consider not investing any money in these stocks beyond what you can really afford to lose. Owning them right now isn’t a stroll in the park by any stretch of the imagination. Volatility is elevated, and when it’s elevated, substitute the word “risk” for volatility.

Tales from the Lumberyard: After yesterday’s wild price action in , we can officially add it to the list of commodities that are hard to pin down these days. For the past couple weeks it’s been looking like that old adage in the commodities market about high prices being the cure for high prices. For lumber traders—and those following the housing market—Wednesday’s 10% price range (see chart above) is a classic case of mixed signals, as the price for those wooden boards has been taking a volatile, meandering path back toward earth after a meteoric rise in early 2021. On the one hand, construction spending—particularly at the residential level—has continued to tick upward. But last month’s housing starts and building permit numbers showed a bit of a pullback from the blistering pace over the past year. And from a macro level, the mixed signal is inflation and, specifically, whether it’s “transitory” or the first leg of a commodity supercycle.

One thing to watch is homebuilders. Any sustained pullback in lumber and other raw material prices, all things equal, would certainly help homebuilders at the margin. But it might also indicate a high-water mark in demand, much of which may have been pulled forward by stimulus, record low rates, and lack of inventory. For what it’s worth, Toll Brothers (NYSE:), which reported solid last week, raised its full-year guidance, encouraged by housing market strength and continued low interest rates. Other homebuilder biggies, including KB Home (NYSE:) and Lennar (NYSE:) will release earnings in the next couple weeks, right around the time when we’ll get fresh readings on new and existing home sales. Meanwhile, the lumber market looks to be in a state of confusion. Stay tuned.

Tech Mega-Caps Stay Sluggish: Traditional tech leaders AAPL and MSFT have really lost steam over the last month, and both are trading well under their 2021 highs. This could reflect a lot of things, and there’s no one answer. Worries about how long AAPL can maintain firm growth in iPhone sales after its recent successful iPhone 12 introduction might play into this, along with ideas that maybe some of the biggest Tech firms have already seen their peak Covid recovery. There’s a sense of “what can you do for me now?” built into some of the stocks that carried the market along for several years.

As tech marched in place recently, two other sectors appeared to spark more enthusiasm among market participants. Automobile stocks like General Motors (NYSE:) and Ford (NYSE:) surged amid enthusiasm over electric vehicles, and chip stocks like Nvidia (NVDA), Lam Research (NASDAQ:), and Applied Materials (NASDAQ:) cruised higher thanks in part to the global shortage of semiconductor chips. These are some of the stocks that seem to have more momentum going into June than the overall Tech sector.

Disclaimer: TD Ameritrade® commentary for educational purposes only. Member SIPC. Options involve risks and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options.

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