Today’s job fair will be well attended… by all

Stocks gained yesterday as investors rejoiced the House’s passing of a debt ceiling package. According to the Institute of Supply Management’s latest PPI, the manufacturing sector is slowing.

Help really wanted. As we started this abbreviated trading week in the US, Fed Funds futures predicted slightly better than even odds of a +25 basis-point rate hike later this month. In my book, that means not just possible, but rather probable. When you looked at July’s probabilities, I would have classified those as… a given, with 99% probability. If you have been following the saga closely, you would note that these numbers are all over the place these days. While the general “feeling” of most investors is that the Fed is nearing the end of its hiking regime, there is still much conjecture over exactly when and whether the big Bankers will throw in 1 final hike for good measure. Still, there is another movement that is expecting rate cuts late in the year. It’s OK if you are sick and tired of hearing about all of this, it is rather tedious even here at the center of the financial universe on Wall Street. However, there is still good reason to focus on it, because once the Fed officially pivots, the trading dynamic of all markets will certainly change. For example, while we are all happy that the NASDAQ is charging back to its all-time high, even the most risk-hungry traders have concerns on whether it’s too far too fast, and while the AI world will certainly continue to dominate the discussion, things moved so fast in recent weeks, that there is a sense that maybe some backfilling will be necessary. Should the Fed officially pivot, those concerns are likely to fade… um, really fast.

What caused these hiking probabilities to fade in recent days? For one, there are some small hairline cracks appearing in the economy. I intentionally used the adjective “hairline”, because the top line numbers on the economy are actually showing signs of a resilient economy. Only the nerdiest of economists, who dig deeply into the numbers (LIKE US) can find those miniscule fractures. There are also folks who desperately need rates to go lower (um, real estate investors ) and those who would love to see rates lower (anyone who owns technology stocks). We often find what we are so desperately seeking in the markets, even though it may be a mirage.

Of course, there was a parade of Fed speakers this week who made it clear that they thought pausing at the next meeting was prudent. Even some notable hawks spoke with a bit less hawky-talk in this past week, which is most likely the real reason why probabilities for hikes faded and Treasury yields eased a bit. This morning we will get the monthly employment numbers from the Bureau of Labor Statistics, which has the potential to change things up quite drastically. The Fed has made it clear that its biggest concern is the tightness in the labor market. Tight means higher wages and… well, more inflation. The problem is, even the most bullish wishers of lower rates cannot argue that the labor market is not tight. Sure, we all read headlines that companies are laying off employees, but according to this past week’s JOLTS Job Openings number, there are still plenty of job vacancies to be filled. 10.1 million to be exact, and still just below the all-time 12 million high. This morning, the Unemployment Rate is expected to have increased to 3.5% from 3.4%. The increase should be positive for the Fed but considering that is THE LOWEST IT HAS BEEN SINCE 1969… um, the Fed may disagree. Nonfarm Payrolls are expected to have grown by 195k, which is slightly lower than last month’s +253k additions. Yesterday’s private sector ADP Employment Change number came in higher than expected, but last month’s number was revised down, so there is really nothing to glean from the number, likewise from the weekly Initial Jobless Claims number while it is still in a range higher than it was for most of 2022, but still nowhere near where the Fed hawks would like to see them for a sustained period of time. The last data point I want to highlight is yesterday’s ISM Manufacturing employment component which came in at 51.4, higher than last month’s read. That is positive for employment… and negative for those hoping to see the softer side of the Fed. Index futures are higher in early trade in response to the Senate’s passing of the debt ceiling package, WHILE YOU SLEPT… but that can all change at 8:30 AM Wall Street Time. Pay close attention to the numbers this morning, because the guys and gals whose feet are firmly on those brakes certainly will be.

YESTERDAY’S MARKETS

Stocks rallied yesterday after the House passed a debt ceiling package. The S&P500 rose by +0.99%, the Dow Jones Industrial Average climbed by +0.47%, the Nasdaq Composite Index jumped by +1.28%, and the Russell 2000 Index advanced by +1.05%. Bonds traded higher and 10-year Treasury Note yields slipped by -4 basis points to 3.59%. Cryptos gave up -0.26% and Bitcoin declined by -0.92%. The S&P500 ESG Index added +1.11%.

NEXT UP

• Change in Nonfarm Payrolls (May) is expected to show 195k new hires, lower than last month's 253k print.
• Unemployment Rate (May) may have risen to 3.5% from 3.4%, still low by historical standards.
• Average Hourly Earnings (May) are expected to have grown by +0.3% for the month, lower than last month’s +0.5% growth. This is not a popular number, but the real nerds watch this BECAUSE THE FED ALSO WATCHES THIS… they are, after all, nerds as well.
• Next week: still a few more earnings will bubble in along with Factory Orders, Durable Goods Orders, and ISM Services Index. Check in on Monday for calendars and details.