Jobs Report vs Market Reaction Today

[marko]

October 5; noon EDT.
Can someone explain how when a great jobs report comes out like today, the market drops 250 points as of this writing?

It's obviously counter intuitive but I just don't get the reasoning or mechanics.

Not looking for a deep discussion; just trying to understand this. How is this bad news?

 

[audreyh1]

Because long term interest rates have jumped sharply over the last three days, all due to strong jobs reports, and ultimately higher long term interest rates hurt corporate profitability. As does rising wages which is what today’s employment report indicated.

The 20 year, 30 year and even the 5 year have made new multi-year highs. The 30 year breaking above 3.25% was a concern for market watchers, and it’s well above that now, with the 10 year almost there at 3.24% now. The concern was that if those long bonds finally broke above those rates, they would move much higher, and they certainly have been doing just that.

 

[JDARNELL]

Perhaps it means more rate hikes than foresaw and the market is adjusting.

 

[Running_Man]

October 5; noon EDT.
Can someone explain how when a great jobs report comes out like today, the market drops 250 points as of this writing?

It's obviously counter intuitive but I just don't get the reasoning or mechanics.

Not looking for a deep discussion; just trying to understand this. How is this bad news?

Interest rates are breaking out to new highs and have increased by 100 percent in around 2 years. If the outlook is for higher interest rates then the present value of the risk adjusted return on stock assets fall.

In March 2009 jobs report:
THE EMPLOYMENT SITUATION: MARCH 2009
Nonfarm payroll employment continued to decline sharply in March (-663,000), and the unemployment
rate rose from 8.1 to 8.5 percent, the Bureau of Labor Statistics of the U.S. Department of Labor
reported today. Since the recession began in December 2007, 5.1 million jobs have been lost, with almost
two-thirds (3.3 million) of the decrease occurring in the last 5 months. In March, job losses were
large and widespread across the major industry sectors.

From there the market was up 12 percent from March to April 2009 and 400% since then. I realize the average investor believes index funds take mon

 

[Red Badger]

The current political chaos with The Supremes is also a factor. Markets don't like uncertainty

 

[marko]

Because long term interest rates have jumped sharply over the last three days, all due to strong jobs reports, and ultimately higher long term interest rates hurt corporate profitability. As does rising wages which is what today’s employment report indicated.

Thanks once again audreyh1. That's all I wanted.

 

[ESRwannabe]

October 5; noon EDT.
Can someone explain how when a great jobs report comes out like today, the market drops 250 points as of this writing?

It's obviously counter intuitive but I just don't get the reasoning or mechanics.

Not looking for a deep discussion; just trying to understand this. How is this bad news?

Probably because it means that the Fed will continue raising rates.

 

[street]

Because long term interest rates have jumped sharply over the last three days, all due to strong jobs reports, and ultimately higher long term interest rates hurt corporate profitability. As does rising wages which is what today’s employment report indicated.

The 20 year, 30 year and even the 5 year have made new multi-year highs. The 30 year breaking above 3.25% was a concern for market watchers, and it’s well above that now, with the 10 year almost there at 3.24% now. The concern was that if those long bonds finally broke above those rates, they would move much higher, and they certainly have been doing just that.

I was wondering the same thing and what yo said makes perfect sense. Economy is very strong where I live and so many jobs that employers can't find help. Good paying jobs at that.

 

[Mdlerth]

Stop, in the name of love!

The current political chaos with The Supremes is also a factor. Markets don't like uncertainty

+1

 

[dvalley]

Along the same lines I found this video to be quite interesting, especially where she talks about the yield curve being a good indicator of a recession.

https://www.cnn.com/videos/business/2018/10/03/bull-market-length.cnn-business/

 

[Fedup]

The current political chaos with The Supremes is also a factor. Markets don't like uncertainty

I don’t think this has anything to do with the market. The market has been strong the whole week until the last few days. Actually the last few days the uncertainty became less uncertain. Maybe not a slam dunk, but I think of it has high probability.

 

[audreyh1]

Along the same lines I found this video to be quite interesting, especially where she talks about the yield curve being a good indicator of a recession.

https://www.cnn.com/videos/business/2018/10/03/bull-market-length.cnn-business/

But what is interesting is that the yield curve has been steepening these last few days, not flattening, as the long bond yields finally moved up. It's the inverted yield curve that is an indicator of a recession, and we have been moving away from that the last few days.

In my answer to Marko above I neglected to mention that bonds are always in competition with stocks for investors. So as yields rise, more investors are willing to take some risk off and move from stocks to bonds. This puts pressure on stock prices.

This has been exacerbated by the recent long period of Quantitative Easing (QE) where rates were kept low for a long time while the economy was weak. As a result investors took on far more risk to get higher growth/yield and the stock market has gone way up. Now we are going through the reversal of this process.

 

[dvalley]

But what is interesting is that the yield curve has been steepening these last few days, not flattening, as the long bond yields finally moved up. It's the inverted yield curve that is an indicator of a recession, and we have been moving away from that the last few days.

In my answer to Marko above I neglected to mention that bonds are always in competition with stocks for investors. So as yields rise, more investors are willing to take some risk off and move from stocks to bonds. This puts pressure on stock prices.

This has been exacerbated by the recent long period of Quantitative Easing (QE) where rates were kept low for a long time while the economy was weak. As a result investors took on far more risk to get higher growth/yield and the stock market has gone way up. Now we are going through the reversal of this process.

I agree 100% now that you mentioned it because I was simply (perhaps mistakingly even) looking at the 30yr mortgage vs. a 1yr CD rate and the gap is a fair bit so I didn't quite see why she said the gap is flattening but then I thought I was probably just looking at the wrong indicators (30yr mortgage vs. 1yr cd).

 

[audreyh1]

I agree 100% now that you mentioned it because I was simply (perhaps mistakingly even) looking at the 30yr mortgage vs. a 1yr CD rate and the gap is a fair bit so I didn't quite see why she said the gap is flattening but then I thought I was probably just looking at the wrong indicators (30yr mortgage vs. 1yr cd).

Well the yield curve was flattening through the summer because the 10 year and 30 year weren’t moving up, while short rates increased. Now the long rates are finally moving up too, so it is only recently that it has started to steepen.

 

[Mr._Graybeard]

But what is interesting is that the yield curve has been steepening these last few days, not flattening, as the long bond yields finally moved up. It's the inverted yield curve that is an indicator of a recession, and we have been moving away from that the last few days.

In my answer to Marko above I neglected to mention that bonds are always in competition with stocks for investors. So as yields rise, more investors are willing to take some risk off and move from stocks to bonds.

This confounds me a bit: long-bond yields are market driven. So if more investors are moving to bonds, why are yields rising so quickly? I would think the greater demand would be driving yields down.

I suppose the Fed's move away from QE could flood the supply side of the market...? Then too, rising yield equals lower value of existing bonds, so some investors may be in a sweat to sell the paper they hold. But where are their assets going? Into cash? Gold? Hm.

 

[audreyh1]

This confounds me a bit: long-bond yields are market driven. So if more investors are moving to bonds, why are yields rising so quickly? I would think the greater demand would be driving yields down.

I suppose the Fed's move away from QE could flood the supply side of the market...? Then too, rising yield equals lower value of existing bonds, so some investors may be in a sweat to sell the paper they hold. But where are their assets going? Into cash? Gold? Hm.

As yield rise, more investors would be attracted to bonds. That doesn’t mean they will go down, it’s a balancing act. If yields drop, fewer investors would be interested. And it’s in relation to other assets. The hit on stocks is more of a perception that bonds are relatively more attractive, and they are when yields rise.

That’s not what is driving long bond yields up - other market forces are driving bond yields up. It’s simply part of what drives stock prices down when bond yields move up - in addition to concerns about corporate profits going down due to higher borrowing costs and higher wages.

The Fed unwind has been pretty quiet while ramping up for a year, and hasn’t had much of an impact on long rates until perhaps now. Investors get to buy higher yielding bonds now - maybe some are moving from stocks and/or cash to bonds. Whether they hold onto old bonds until maturity, or sell them to buy new ones, they’ve already taken the hit so that is a wash.

 

[NW-Bound]

The job market was extremely strong in late 1999, and early 2000. Unemployment was 4% in 2000. And that was as good as it got. Unemployment rose back to 4.9% in 2001.

And we all remember that the market topped out in 2000. It then crashed and did not regain that high until 2007.

The unemployment number just released was 3.7%. That's an even lower number. Good or bad?

 

[timo2]

October 5; noon EDT.
Can someone explain how when a great jobs report comes out like today, the market drops 250 points as of this writing?

It's obviously counter intuitive but I just don't get the reasoning or mechanics.

Not looking for a deep discussion; just trying to understand this. How is this bad news?

For quite a few years now it appears that wall street and main street are not connected. They each respond to entirely different triggers.

 

[NW-Bound]

The stock market always looks ahead. The news today is already about the past. The market anticipates what comes next. Of course it is not always right, and corrects itself often.

 

[kgtest]

I think its a psychological game with a lot of players. Lots of reason for sell-off, fear and uncertainty usually always create volatility and some people know this. Market timers, those that need to take their RMD decide to pull the trigger at the top of the roller coaster?

My guess is we bounce back to all-time highs within 20 trading days.

Edit to add, my guess Bank deposits will be up. Good time to go long on those. ?

 

[dtbach]

The stock market always looks ahead. The news today is already about the past. The market anticipates what comes next. Of course it is not always right, and corrects itself often.

+1 I think this is a healthy correction vice the start of a Bear market. Can't blame folks for taking profits.

 

[kgtest]

To add, we knew this year would be volatile. We all knew FOMC would raise and continues to raise rates. Totally expected.

At one point with me being basically all-in 100% equities, I was down almost to correction territory at 9.9%, then I bounced back up 17% on the year...now I am down to 12.23%. All within 9months. What do we say, Wheee!

We hit the bottom for rates.

134k jobs added Florence cost 17,18k jobs, Unemployment rates lowest levels in 48years and in a comparable Vietnam era back then compared to Tech and automation boom of today.

Edit to add..Get your cash ready, buy low. We have a bit more to go on the elevator ride down.

 

[kgtest]

Jared on the floor says a large sector shift is possible.