Good morning contrarians!
Stocks treaded water yesterday. There simply wasn’t much movement in the broader indexes, though individual stocks bounced around pretty significantly on earnings. Expedia (EXPE 0.00%↑) was a major winner there, up 7% overnight. Warner Bros Discovery (WBD 0.00%↑), recently spun out of AT&T (T 0.00%↑) a major loser, down 10%.
State of Play
As of 0630, all is quiet:
Stock futures are flat as a board, with major indexes sitting right at the break-even point;
Commodities aren’t doing anything either, though WTI crude oil dropped below $90/barrel yesterday and is now trading around $88.50/barrel;
Cryptos are up a bit, with bitcoin gaining 1% to move past $23,000;
Bonds are dropping a bit, with the yield on the 2-year up 3 basis points to 3.06% and the 10-year up 2bps to 2.7% (yields move inversely to prices).
Non-Farm Payrolls
It’s the first Friday of the month, which makes it ‘jobs day.’ The Bureau of Labor Statistics publishes non-farm payrolls for July at 0830. Economists expect 258,000 new jobs, down from the 372,000 seen last month. That would keep the unemployment rate steady at 3.6%.
As you can see from the above chart, the labor market has been resilient. We had ‘quits levels’ print at an all-time high earlier this week. Initial jobless claims are edging up, but the economy is still able to produce new jobs in abundance.
Still, this would be the fifth month in a row of new payrolls sub 400,000 and first sub 300,000 in more than a year. That figure is still impressive and obviously nowhere near recessionary territory (remember these are new jobs created each month), but well off of some of the gaudy numbers we’ve seen these last couple of years.
The Bottom Line©
The jobs report is one of those reverse psychology things: You don’t actually want a lot of growth here because that will mean the Fed has to raise interest rates more than expected. That will be bad for stocks. The market appears to be pricing in a ‘Fed pivot’ to neutrality or even rate cuts by this autumn. For that to happen you need the economy to cool. For that to happen, you need jobs growth to slow.
That will be the quickest fix for inflation, too. If there is less money chasing more goods, then prices will come down. If Americans are unemployed (or afraid of becoming unemployed, as happens in a recession) then they will be less keen to spend money on things they don’t need.
That’s the simple calculation, but there is a lot of room for nuance. Speaking of money, there still seems to be a lot of it sloshing through the system and driving up asset prices. Is the bear market over? The Nasdaq is putting in another strong week, leading U.S. indexes. It’s still in a bear market (more than 20% off the all-time high) but there’s been a lot of healing these last six weeks. Can it continue? You tell me.
Non-Farm Payrolls: The Only Game in Town