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We woke up on Friday morning to a huge surprise, with the Jobs Report coming out much stronger than expected. As the Federal Reserve typically looks closely at this number to help determine monetary policy, the initial reaction to the reading was fear of higher-for-longer interest rates. However, as per an interview I did on Benzinga Morning Prep, is that really so bad for the market in the long run?

The parabolic moves in Amazon and Meta have little to do with the overall economy, if one looks at the big picture. Nonetheless, both soared after earnings, and both helped to widen the divide between small-caps and growth stocks.

Additionally, the risk gauges I monitor have flashed a more risk-off reading over this past week.

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Pay attention to the long bonds TLT ETF versus the SPY and HYG. In a risk-on environment, the TLT ETF should be underperforming both. This chart does not reflect Friday’s action, which did see the SPY improve and TLT decline, which could indicate a more risk-neutral sentiment. The point is, aside from the few frenzied stocks, the market breadth was not great this past week.

However, the IWM and XRT have been telling their own stories, which should not be ignored.

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Looking at the daily chart of the IWM, we can determine a lot from the price, but also from our ACP plug-ins. The price is above the 50-DMA, so the bullish phase is intact. Plus, Friday was an inside-day compared to Thursday's range.

The calendar range seemingly tells us that the IWM can go either way. A move below the January lows would spell trouble, while a shift above the highs would be very bullish.

Leadership has seemingly been underperforming the SPY, which we know is unsustainable. Either the SPY will begin to fall, or the IWM must play some catch-up. Our momentum indicator tells us that there is no real diversion between momentum and price at the moment. The IWM appears to be lying in wait.

In comparison, the XRT ETF certainly looks better. When looking at the monthly chart, one can see that the XRT took out a 23-month moving average, seemingly moving into an expansion period.

Since December, January, and so far in early February, the XRT has been experiencing two inside months in contrast to December’s large range. So, if we step back, a move over to the 72.94 area could be the start of something much bigger. In the meantime, the January range high has seemingly remained elusive, while the XRT has held well above the January calendar range low.

The XRT has also been underperforming the SPY. Momentum, as seen in the IWM, has been lying in wait, yet it has not shown any divergence to price.

Is Higher-For-Longer So Bad for Investors?

Finally, if normalization is reached in that inflation and Fed Fund rates remain aligned, and the public gets used to a historically viable interest rate of 5.5%, the answer is that adaptive investors will likely find great opportunities in such an outcome.

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