The Jobs News May Not Be as Strong as It Looks
The economic situation is not nearly as rosy as some folks may think.
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After jumping on Friday following news of a stronger-than-expected jobs report, equities are indicated lower Monday morning.
There are a couple of issues that are causing concern and some confusion. The first is that interest rates are rising as the odds of aggressive Fed rate cuts are declining. The 10-year Treasury yield is around 4%, which is where it stood before the Fed started cutting rates. The market is no longer expecting a half-point cut in November and is pricing in two quarter-point cuts.
The other issue is that there is quite a bit of disagreement about how strong the September jobs report really was. Every job report in the past year has had very large revisions. Most of the time, they were to the downside, but this time, there were upside revisions to some earlier reports.
Some of the problems with the September jobs report are as follows:
1. The seasonal adjustment was extremely large. If it had been the same level as last year, jobs would be about 100,000 less.
2. ADP payroll was the weakest September on record.
3. The average workweek declined to 34.2 hours, which is recessional levels.
4. Most of the new jobs were government-related, and this was the highest since June 2020.
The more we look under the surface of this report, the less attractive it looks. What is interesting, though, is that bonds appear to view it as inflationary while equities view it as confirmation of a Goldilocks economic scenario.
There is CPI data coming up later this week, but the important issue here is that the economic situation is not nearly as rosy as some folks may think it is. The market is celebrating it for now, but we have to wait for a shift.
The most immediate market catalyst will be earnings that start in earnest on Friday when JPMorgan Chase JPM, BlackRock BLK, and Wells Fargo WFC report. We will have to wait a while before the very important big-cap technology names, but we should see some indications about the expectations when the banks report.
I’ve been complaining for weeks about how difficult it has been to put additional capital to work. That has not changed, but a deeper market pullback would help correct that situation.
We have a poor start on Monday morning, but dip buyers often show up to start the week.
At the time of publication, Rev Shark had no positions in any securities mentioned.
