Jobs reports are tricky for investors. There is a balance that needs to be respected. A balance of a healthy economy and a market friendly Fed. Picture a tightrope walker, also known as a funambulist. The funambulist is the market, their tight rope is the support keeping them (prices) from falling.
The funambulist fears both sides of the wire. On the right he has inflation deteriorating his purchasing power, a worry about the cost of tomorrow. On the left he has a central bank fighting the pull of inflation while risking a weakening economy, diminishing profits, and ultimately a recession.
The funambulist was leaning to the left coming into Friday in response to Federal Reserve's unquenchable Federal Open Market Committee (FOMC) meeting this week. The Fed increased rates Wednesday but left uncertainty in the air over their next move. They are uncertain themselves. Investors were hoping for a clear message telling them rate hikes are over. But the Fed wanted to keep that tool available if needed.
The strong April Jobs report counterbalanced the funambulist's sway on Friday and stocks rallied into the weekend. But this was not only because it was the most jobs added in a month since January, or that unemployment fell to match the lowest level since 1969, or even because income rose 4.4% from the previous year; it was the timing. Investors allowed themselves to enjoy these strong economic progressions because they came directly after the FOMC meeting, not leading up to one. Investors need to care less about the influence it had on the central bank's analysis with the May jobs report on deck between now and the next FOMC meeting mid-June. The funambulist found his balance, for now.
The problem is the labor data did have an effect on the Fed rate probabilities. Thursday's 9% projection of a rate cut in June plummeted to a hard 0% on Friday. Thursday's 0% projection of a rate hike sprung to 7% on Friday. The 93% left is on no rate hike at all, which would be the first time the FOMC did not raise rates at a meeting since they started consecutively raising rates in March of 2022.
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