Our Take on the September Employment Report
There are renewed concerns the Fed will be that much closer to boosting the fed funds rate in early November.
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* The 10-year Treasury yield moves higher on the back of a stronger-than-expected September Jobs Report, pressuring equity futures
* Average hourly earnings showed modest year-over-year progress in September
* This data will push the probability of the Fed hiking rates in November higher
* We will exit a small-cap holding when the market opens for trading
Leading up to this morning's September Employment Report, equity futures were inching higher as was the yield for the 10-year Treasury. However, with the far stronger than-expected number of jobs created by the US economy during September - 336,000 vs. the expected 170,000 and 187,000 created in August - we are seeing the 10-year Treasury yield move even higher, crossing 4.8% ahead of the stock market open, and equity futures reverse course indicating a down market open later this morning.
This is especially the case for both the tech-heavy Nasdaq and small-cap stocks measured by the Russell 2000.
The September Employment Report data also showed modest improvement in wage pressures, with average hourly earnings up 4.2% year over year. While that does break from the 4.3%-4.4% range for the prior six months, it's another data point suggesting that form of inflation remains persistent, and the employment market continues to be tight.
The unchanged Unemployment Rate of 3.8% also points to the labor market remaining rather tight as well. Digging further into the report, private payrolls shot up 263,000 during September far more than 103,000 the prior month, suggesting findings by the September Challenger Job Cuts Report about plans to hire were far more on point than ADP's September Employment Change report.
Clear Secure
Earlier this week, we laid out our game plan for the Action Alerts PLUS position in Clear Secure YOU , sharing that we would exit the shares if the September Employment Report was stronger than expected. As we are seeing play out this morning, our thinking was a strong jobs report would lift the 10-year Treasury yield even further amid renewed concerns the Fed will be that much closer to boosting the fed funds rate in early November.
That would lead to an even stronger headwind for small-cap stocks, making it even more of a challenge for us to claw back our losses in YOU shares. Following through on that plan, we will be exiting YOU shares when the market opens for trading.
Our exits earlier in the week for American Water Works AWK and ChargePoint CHPT , boosted the portfolio's cash position, which will help mitigate today's market action. It will also serve to give us more firepower when the market eventually finds its footing and we can put that cash to work on our shopping list and possibly new Bullpen contenders.
Action Alerts PLUS is Long YOU.