To The Moon

The latest jobs report has complicated the outlook for US technology stocks. Employment growth came in much stronger than expected, with 165,000 jobs added against forecasts of just 59,000. Unemployment remained at 4.1%.

At first glance, stronger employment is positive for the economy. It suggests businesses are still hiring and consumers may remain resilient. But for the stock market, particularly high-valuation technology companies, the reaction is less straightforward.

The concern is that a strong labour market could give the Federal Reserve less reason to cut interest rates. If inflation also proves stubborn, expectations for rate cuts could be pushed further out, putting additional pressure on growth stocks.

Friday’s market performance showed this tension. The Nasdaq 100 ETF (QQQ) gained 1.29%, while the S&P 500 rose 0.27%. Technology stocks led the recovery as concerns over AI data-centre approvals eased. However, the broader market’s more modest gain suggests investors are not yet fully convinced that the rebound is sustainable.

CPI is the next major test

The November 10 CPI report could provide the market with a clearer direction.

Current estimates point to monthly headline inflation of 0.3% and core inflation of 0.2%. Investors will be watching both numbers, but the underlying details may matter even more.

Three possible scenarios stand out:

1. Inflation comes in below expectations

This would be the most favourable outcome for technology stocks. Cooling inflation could ease concerns about interest rates staying higher for longer. Treasury yields may fall, supporting valuations for companies whose expected earnings are further into the future.

QQQ could benefit, particularly if semiconductor and AI-related stocks regain momentum.

2. Inflation matches expectations

A broadly in-line report may not be enough to trigger a major rally. Investors would likely turn their attention to the details, including services inflation and the direction of Treasury yields.

The market could remain volatile as traders reassess the balance between economic growth and inflation.

3. Inflation comes in hotter than expected

This is the risk scenario for growth stocks. Strong employment combined with persistent inflation could reinforce expectations that interest rates will remain elevated.

Higher Treasury yields would make future earnings less valuable today, potentially putting pressure on expensive technology and AI stocks.

Don’t overlook Treasury yields

CPI headlines will attract attention, but Treasury yields may provide the more useful signal for investors.

If inflation cools and yields decline, it could support a broader recovery in technology stocks. If yields continue rising despite a positive equity session, the market may be signalling that investors remain concerned about monetary policy.

There is also another issue investors should not ignore: AI spending.

Easier financing conditions may support technology valuations, but they do not automatically guarantee that massive investments in AI infrastructure will generate attractive returns. Investors still need to see revenue growth, stronger cash flow and evidence that spending is producing real business value.

My view

I would not treat one strong jobs report or one CPI reading as enough to determine the market’s longer-term direction.

The combination of employment, inflation and Treasury yields matters more. Strong economic growth is positive, but if it keeps interest rates elevated, highly valued technology stocks may struggle.

For QQQ, the ideal combination would be cooling inflation, stable employment and declining Treasury yields. That would give investors more confidence that the economy can remain resilient without forcing monetary policy to stay restrictive.

The next move may depend less on whether CPI beats or misses expectations and more on how bond markets respond.

For discussion purposes only, not financial advice.