Stocks rallied sharply after a much better than expected jobs report on Friday. Small caps led with a 1.4% gain while the I-fund lagged after a big rally in the dollar. The F-fund fell sharply as yields jumped on the strong economic data. The jobs data may have been too strong as it is likely to have a hawkish impact on the Fed's decision on interest rates next month.
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The September Jobs Report blew away any expectations on Friday with an unbelievable 254,000 jobs created in September. Briefing.com had the estimates in the 120K to 135K range. The unemployment rate also unexpectedly ticked down 0.1% to 4.1%.
If you've been reading here, you knew we thought it was going to be a good report because it was the final jobs report before the election, but I thought they'd keep it reasonable to keep the Fed's 0.50% interest rate cut on the table for November. Well, that's gone, but we're still likely to see 0.25%.
This is tremendous data for the economy but the question, what if this data is being manipulated? Does it matter to the stock market? Remember that they just revised last year's reported jobs total down by 818,000, after a 700,000 reduction the prior year, so this may turn out to be a temporary number, but the stock market has to react now.
Would it surprise you to find out that basically all of the jobs created were government jobs? In fact, according to Andrew Zatlin of Southbay Research, it was the largest jump in government jobs on record for a September, and private jobs actually came down dramatically during the month.
This is from the Bureau of Labor Statistics, bls.gov:
Source: https://www.bls.gov/news.release/empsit.t17.htm
Without the government jobs the unemployment rate would have been 4.5% instead of 4.1%, but jobs are jobs, I suppose. Nothing against government employees. I was one, my wife was one, and many of you are one. However, a private job is generated out of economic demand, and a government job is created at will with taxpayer money.
Whatever is being done, it positively impacted the stock market and it is going to impact the Fed's monetary policy next month. And since I don't have a say, all I can do is play along and try to take advantage of what the stock market is giving us under the circumstances, but I do have a skeptical tilt to my analysis. It will be very interesting to see, now that they've had a weekend to think about it, what investors will do next.
If it was nudged at all, they probably didn't even need to. There was a good set up already developing in the stock market. Rates were coming down. The Fed was going to open the liquidity spigots anyway, but will this jobs report scare them? Will it put inflation concerns back on the table because wages also moved up more than expected as well? It all sounds positive, more jobs and higher wages, but it better be real because the Fed is liable to put the breaks on.
But I digress. What do I know? Not much about what's really happening.
What I do know is that yields and the dollar surged on the data, so the bond market took it on the chin and we saw a 0.72% loss in the F-fund on Friday, while stocks were rallying. I had been saying that the market would not like to see the 10-year above 3.9% and boy was I wrong - at least on Friday. Both the 10-year and the 2-year yields are back flirting with 4%, and ...
... they are nearly inverted again.
The dollar was also up big and that kept the I-fund from enjoying the gains of the US stock funds.
On Thursday we will get the CPI report, which is expected to reiterate what we've been seeing for months - that inflation is under control. We certainly don't want to see any surprises there but if the jobs and wages data is accurate, maybe we better be prepared for something a little hot. Ha! Just kidding. The election is next month. It will be just right.
Bottom line: The market looks good, the charts look good, China's stimulus is a positive, the economy is growing, rates are coming down - although maybe a little slower than we thought, but the indices are still flirting with the recent highs and there could be some profit taking even the though the data and the Fed are still on the bulls' side. Also, keep an eye on the price of oil as it starts to creep up. It's not at a bad level, but the downtrend may be breaking.
Admin Note: In the coming weeks we may be working on a server and software upgrade, starting with the forum, that could disrupt the website periodically. I've procrastinated long enough and it's time to get it done. The maintenance could take part or all of the website down at times, but it will not impact Premium Service email and text alerts. I'll keep you posted.
The S&P 500 (C-fund) gained nearly 1% on Friday after the jobs report was released. Algorithm trading will kick in on a report that good, but the fact that the gains held into the close probably tells us that the big money was not looking to take profits yet. Friday was the second highest close of the year and it appears the recent pullback is over, if the bulls can follow through early this week.
DWCPF (S-fund) led the way on Friday as the potential for economic strength outweighed the possibility of smaller interest rate cuts. The chart looks impressive but let's see if that sentiment persists into the new week. That is, if a record number of government jobs is enough to outweigh a slow down in rate cuts.
The EFA was up 0.58% and ACWX was up 0.78%, and the "ex USA ex China ex Hong Kong Index" was down 0.68%. The I-fund was given a again of 0.48%. There was a slight breakdown in teh EFA chart but it bounced back to close back above the 20-day EMA.
BND (F-fund) imploded on the strong jobs data on Friday. The breakdown below the 20-day EMA on Thursday was the warning, and Friday was the aftermath. This suggest strong economic growth, but also higher interested rates, at least higher than originally thought.
Thanks so much for reading! We'll see you back here tomorrow.
Tom Crowley
Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php
Questions, comments, or issues with today's commentary? We can discuss it in the Forum.
Daily Market Commentary Archives
For more info our other premium services, please go here... www.tsptalk.com/premiums.html
To get weekly or daily notifications when we post new commentary, sign up HERE.
Posted daily at www.tsptalk.com/comments.php
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.
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The September Jobs Report blew away any expectations on Friday with an unbelievable 254,000 jobs created in September. Briefing.com had the estimates in the 120K to 135K range. The unemployment rate also unexpectedly ticked down 0.1% to 4.1%.
If you've been reading here, you knew we thought it was going to be a good report because it was the final jobs report before the election, but I thought they'd keep it reasonable to keep the Fed's 0.50% interest rate cut on the table for November. Well, that's gone, but we're still likely to see 0.25%.
This is tremendous data for the economy but the question, what if this data is being manipulated? Does it matter to the stock market? Remember that they just revised last year's reported jobs total down by 818,000, after a 700,000 reduction the prior year, so this may turn out to be a temporary number, but the stock market has to react now.
Would it surprise you to find out that basically all of the jobs created were government jobs? In fact, according to Andrew Zatlin of Southbay Research, it was the largest jump in government jobs on record for a September, and private jobs actually came down dramatically during the month.
This is from the Bureau of Labor Statistics, bls.gov:
Source: https://www.bls.gov/news.release/empsit.t17.htm
Without the government jobs the unemployment rate would have been 4.5% instead of 4.1%, but jobs are jobs, I suppose. Nothing against government employees. I was one, my wife was one, and many of you are one. However, a private job is generated out of economic demand, and a government job is created at will with taxpayer money.
Whatever is being done, it positively impacted the stock market and it is going to impact the Fed's monetary policy next month. And since I don't have a say, all I can do is play along and try to take advantage of what the stock market is giving us under the circumstances, but I do have a skeptical tilt to my analysis. It will be very interesting to see, now that they've had a weekend to think about it, what investors will do next.
If it was nudged at all, they probably didn't even need to. There was a good set up already developing in the stock market. Rates were coming down. The Fed was going to open the liquidity spigots anyway, but will this jobs report scare them? Will it put inflation concerns back on the table because wages also moved up more than expected as well? It all sounds positive, more jobs and higher wages, but it better be real because the Fed is liable to put the breaks on.
But I digress. What do I know? Not much about what's really happening.
What I do know is that yields and the dollar surged on the data, so the bond market took it on the chin and we saw a 0.72% loss in the F-fund on Friday, while stocks were rallying. I had been saying that the market would not like to see the 10-year above 3.9% and boy was I wrong - at least on Friday. Both the 10-year and the 2-year yields are back flirting with 4%, and ...
... they are nearly inverted again.
The dollar was also up big and that kept the I-fund from enjoying the gains of the US stock funds.
On Thursday we will get the CPI report, which is expected to reiterate what we've been seeing for months - that inflation is under control. We certainly don't want to see any surprises there but if the jobs and wages data is accurate, maybe we better be prepared for something a little hot. Ha! Just kidding. The election is next month. It will be just right.
Bottom line: The market looks good, the charts look good, China's stimulus is a positive, the economy is growing, rates are coming down - although maybe a little slower than we thought, but the indices are still flirting with the recent highs and there could be some profit taking even the though the data and the Fed are still on the bulls' side. Also, keep an eye on the price of oil as it starts to creep up. It's not at a bad level, but the downtrend may be breaking.
Admin Note: In the coming weeks we may be working on a server and software upgrade, starting with the forum, that could disrupt the website periodically. I've procrastinated long enough and it's time to get it done. The maintenance could take part or all of the website down at times, but it will not impact Premium Service email and text alerts. I'll keep you posted.
The S&P 500 (C-fund) gained nearly 1% on Friday after the jobs report was released. Algorithm trading will kick in on a report that good, but the fact that the gains held into the close probably tells us that the big money was not looking to take profits yet. Friday was the second highest close of the year and it appears the recent pullback is over, if the bulls can follow through early this week.
DWCPF (S-fund) led the way on Friday as the potential for economic strength outweighed the possibility of smaller interest rate cuts. The chart looks impressive but let's see if that sentiment persists into the new week. That is, if a record number of government jobs is enough to outweigh a slow down in rate cuts.
The EFA was up 0.58% and ACWX was up 0.78%, and the "ex USA ex China ex Hong Kong Index" was down 0.68%. The I-fund was given a again of 0.48%. There was a slight breakdown in teh EFA chart but it bounced back to close back above the 20-day EMA.
BND (F-fund) imploded on the strong jobs data on Friday. The breakdown below the 20-day EMA on Thursday was the warning, and Friday was the aftermath. This suggest strong economic growth, but also higher interested rates, at least higher than originally thought.
Thanks so much for reading! We'll see you back here tomorrow.
Tom Crowley
Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php
Questions, comments, or issues with today's commentary? We can discuss it in the Forum.
Daily Market Commentary Archives
For more info our other premium services, please go here... www.tsptalk.com/premiums.html
To get weekly or daily notifications when we post new commentary, sign up HERE.
Posted daily at www.tsptalk.com/comments.php
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.
