Oil Plunge Opens Door for Growth Stocks, Payrolls Report Looms Large

The recent oil price drop has opened the door for growth stocks to gain traction. However, it's crucial to remember that three Federal Reserve committee members voted in favor of an immediate interest rate hike last week. The current oil drop is temporary and may bounce back if negotiations with Iran collapse.

This means that despite the relief in yields after the hold on a September rate hike, the long end has barely budged. This suggests that there's still an inflation credibility problem for the Fed. The real risk this week lies in Friday's payrolls report, which will decide whether to push for a September rate hike.

The consensus is for 87,500 new jobs, with unemployment expected to tick up to 4.3%. Strong wages on such a rebound would give dissenters the argument they need to push for a rate hike. A miss in the payrolls report will keep pressure on yields and give growth stocks more room to extend their rally.

The market is shifting its focus from cloud-based companies like Amazon and Microsoft, which have already shown strong revenue growth. Palantir's upcoming earnings report will be crucial in proving that software can earn off of the infrastructure spend. A strong number will keep the bid under the AI group, while a soft guide will be a problem for the stock.