Good morning contrarians! It is Friday, June 2. Jobs day.
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State of Play
As of 0635 we are looking at risk-on ahead of the crucial non-farm payrolls print at 0830:
Stock index futures are pointing to gains, with major US indexes all up about 0.5%;
Commodities are gaining ground, with WTI crude oil up 1.5% to trade north of $71/barrel and copper up 1.7%;
Bonds are unchanged. The 2-year yield is 4.35%. The 10-year is 3.61%.
Known Events
The first Friday of the month is all about non-farm payrolls. It has particular importance this month ahead of the Fed meeting, which is June 14. The NFPs alone are unlikely to make Fed policy, but they can certainly go some way toward impacting it. The next CPI report isn’t until June 13, which is likely too late to factor in to Fed policy.
Economists expect 190,000 new jobs, significantly less than the 253,000 seen last month, which would nudge the unemployment rate up to 3.5% from 3.4%. Worth noting that yesterday’s ADP payrolls came in hot, at 278,000 versus a consensus estimate of 170,000. But investors don’t pay much attention to the ADP figure. The NFPs carry much more weight. And the two numbers are often quite far apart.
Narrative Emerging
Tech keeps rallying as the AI hype shows no signs of abating. Yesterday was another strong showing for tech stocks. The question is how much longer this can last. The answer is nobody knows.
A hot employment report could potentially put the kibosh on all this bullishness. That would show continued economic strength, which would bring fear of a ‘higher for longer’ Fed. Right now futures traders are pricing in a 72% chance of no rate hike on June 14 after the latest scuttle from Fed speakers. But markets are fickle beasts.
If we get a soft jobs number then that may pave the way for even more bullishness. There isn’t much on the calendar for next week and with the debt ceiling stuff finally out of the way it could make for risk-taking.
Contrarian Opportunities
Value stocks have taken a beating lately as tech/growth has surged. The Vanguard Value Index Fund ETF (VTV 0.00%↑) is down almost 4% over the last month while the Invesco QQQ (QQQ 0.00%↑) is up 9%. In many ways this is a typical late-cycle move. While one could be forgiven for not wanting to trust value stocks after their performance in more recent cycles (pre-Covid was not great), value does tend to hold its, well, value pretty well during recessions as former podcast guest and GFotP Tobias Carlisle points out in this tweet.
Obviously not all value stocks are created equal and research is required especially if one is going to go the route of individual stocks. And obviously if you don’t think the US economy is going to slow then the whole recession playbook is out the window anyway. But hey, let’s put it to a vote:
Obviously this is not investment advice (duh). There may be other opportunities — and other pitfalls — not covered here. Do your own research, make your own decisions. The Substack chat tracks the author’s trades in (almost) real time. The full portfolio is available upon request.
Non-Farm Payrolls, Opportunity in Value Stocks?