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By: Steve Sosnick Chief Strategist at Interactive Brokers

Readers of a certain age might remember the ads for a brand of antacid that asked the question “how do you spell relief?” The answer was the brand name. “N-o-n-f-a-r-m-p-a-y-r-o-l-l-s” would make a lousy tagline for an ad campaign, but for many traders it removes the need for antacids after a stomach-churning few days.

The numbers themselves were certainly within the range of expectations. The headline number was an addition of 315k, which was slightly above the 298k consensus estimate, but well below last month’s reported 528k. That number underwent a mild revision to 526k, but the June result was revised down by 105k. The unemployment rate rose by 0.2% to 3.7%, but that was largely the result of a similar rise in the labor force participation rate. Also, hourly earnings rose by 0.3%, lower than the 0.4% consensus. On Wednesday we noted that traders “remain hopeful for the sort of weak data that could provide a softening of Fed rhetoric”, but went on to note “be careful what you wish for.” Fortunately, today’s results were weaker than before, but not weak enough to indicate trouble. As I told CNBC just a few minutes after the report:

“Not too hot. Not too cold. It’s right around expectations. There’s nothing in here that takes 75 [basis points] off the table,” he said. “A number that is within expectations doesn’t change anything. What we’re seeing now is a relief rally.” I apologize for recycling my oft-used Goldilocks analogy, especially after I said that it was perhaps time to retire it. The call came just minutes after 8:30 EDT, and it was the first thing that came to mind. And in this case it was true. We were indeed close enough to expectations to offer comfort to the idea that a soft-landing may be achievable.

Both bonds and stocks had sold off sharply in the five sessions since Chairman Powell’s Jackson Hole speech. It was almost exactly one week ago today. Even after today’s 1% bounce, the S&P 500 Index (SPX) is still about 4.5% lower. For further perspective, just two weeks ago I was discussing whether August expiration could take us above 4,300. Now we’re bouncing to 4,015. Yes, stocks had plenty of room for a bounce.

Same for bonds. The 2-Year yield is still about 5 basis points above its pre-speech level, and that is after falling 7.5bp today. The 10-Year yield remains about 20bp above its level from a week ago, but that also means that the 2-10 inversion has shrunk to under 20bp.

The bigger question is whether today’s feeling of relief will last. The CBOE Volatility Index (VIX) seems to indicate that it could. VIX closed at 21.67 before Powell’s speech and traded in a 25-27.5 range for most of this week. Now we’re down 2.25 to 23.31. This is almost a full round-trip for this key volatility index. At this point it is important to remember that VIX is designed to measure the 30-day expected volatility for SPX. Over the coming 30 days we have a now eagerly awaited CPI release on the 13th and an FOMC meeting on the 21st – not to the market’s history of volatility events in the September-October period. Relief is one thing, complacency another. In a column that I authored for this weekend’s Barron’s, I reminded readers about two adages that are useful when central banks have moved to a restrictive stance: “Don’t Fight the Fed” and “Sell the Rips”. As we flirt with the 50-day moving average on SPX, some traders seem to be using that as a place to sell the current bounce. That said, it is the Friday before a three-day weekend so anything can happen. Volumes are likely to be very light this afternoon, especially with a fear-inducing event behind us. Maybe “Don’t Short a Dull Tape” will apply with light volumes, and it would not be out of the question if intrepid options traders attempt another light-volume Friday afternoon rally.

If you’re in North America, enjoy the long weekend. Things get real again on Tuesday ahead of an eventful month.

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