The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Light on jobs
As we awaited the labor data, crude was down more that $3, yields were down a bip or two across the curve, S&P 500 futures were up about 40 points. That was a good setup for the bulls. Nonfarm payrolls (+29k vs +90k est & +133k prior revised from +162k) surprised on the weak side.
Yields fell sharply. S&P futures jumped considerably. Even precious metals jumped higher. Lots of markets were watching the nonfarm data - and reacting. Fed Funds futures dropped the probability of an October hike to 22%.
Risk-on moves were the name of the game and the S&P opened about +65 points. Immediately after nonfarm, yields on the front end of the curve started reversing their initial reaction. Precious metals fully reversed their reaction by 9:30 AM. The long end of the curve took longer to reverse its reaction. By late morning yields were up across the curve. Stocks gave up some of their payrolls gains but were still nicely positive in the afternoon.
Markets, specifically the Treasury market, just gave us something to ponder.
Why did Treasuries completely undo their reaction to nonfarm payrolls?
The weaker data certainly lessens the likelihood that the Fed hikes as aggressively as markets expected. That’s a pretty sound conclusion. The Treasury curve’s knee-jerk reaction was a logical one, especially after the run higher it’s experiences lately.
But the whole curve reversed. It started happening immediately after the data release on the front end and finally happened on the back end a couple hours later. Why?
I don’t have a good answer. The bond market is *marching* rates higher come hell or high water it seems. Stocks are only kinda, sorta paying attention.
It is confusing.
If the bond market is hellbent on driving rates even higher from here. Stocks are going to have to break. I don’t know how much or how quickly but they will need to decline.
If the bond market has overdone things, and yields need to retreat, even if just as an act of market digestion… why not start today, in the face of data that supports just such a thing?
This confusing situation makes me suspect that *something* else is *also* at work in the bond market. Yes, the Fed path matters. But there’s some other powerful force at work that is pushing rates ever higher. Whatever that force is, it’s going unnamed in the market and unpublished in the press.
And even if we never figure it out, if rates keep climbing, stocks will have to start dropping.
See you Monday, have a great weekend.
-Mike
Visdom Market Commentary
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