Conditions for something breaking in the market this month are still elevated and last week’s market action was certainly a step in that direction.
Friday’s non-farm payrolls report came in around what was expected, but the markets treated it as another potentially hawkish piece of data.
I’d continue paying close attention to the signals over the next several weeks.
Conditions for something breaking in the market this month are still elevated and last week’s market action was certainly a step in that direction. The S&P 500 was relatively flat on the week and continues to hold up comparatively well, but several other asset classes are signaling weakness. Utilities were up more than 3%, but small-caps lost 2.5%. Long-term Treasuries gained more than 2% as the 10-year yield briefly touched its lowest mark since September of last year. Gold also added another 2%, pushing through the $2000 level and nearly touching an all-time high.
Friday’s non-farm payrolls report came in around what was expected, but the markets treated it as another potentially hawkish piece of data. The labor market data is kind of all over the place right. NFP shows steady and consistent job growth. The JOLTS number, however, showed job growth cooling. The Challenger Job Cuts report shows layoffs more than doubling over the past 6 months. The market reacts to each number individually, which is pretty much what the Fed’s doing as well. Powell seems to be looking at the latest number when deciding rate policy instead of the path of the data. The market seems to agree with the odds of a May rate hike increasing from around 50% to roughly 67%, according to Fed Funds futures. I made the case just this week that the Fed has probably already overtightened. Continuing to tighten further because the year-over-year inflation rate is at 6% even though the banking and commercial real estate sectors are very unsettled AND the confluence of data shows a steady slowdown in the economy is another example of the Fed remaining way behind the curve.
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