About Those Jobs Numbers: Here's My Biggest Worry
This is why I'm cautious on stocks and bonds right now.
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After those non-farm payroll numbers landed on Friday, a question has been bugging me.
You see, I was looking for bonds to approach 4.8% and suggesting to buy some stocks if they got down 2%, which they did. But I am less convinced that we should be adding any risk here.
Why?
Because, as I keep asking myself: What if markets reacted so poorly on Friday, because no one believes the data, but yet everyone believes that the Fed will need to react to the data?
Yes, as sent in the analysis, the data was strong. It was so strong, as to be almost unbelievable. As you know, I think the seasonal adjustments are wrong and add too many jobs (we won’t know if that occurred for month and months, once final revisions are all done). The household survey (used for the unemployment rate) also “mean reversed,” which shouldn’t have been surprising.
Yet 74 out of 75 economists and firms that provide estimates on the Bloomberg Terminal were too low. In fact very low, with only a handful providing estimates greater than 200,000. Maybe the economists weren’t all wrong? As much as we can disparage the industry, these are well resourced, smart people, taking their best approaches. So if the economists were right, but the Fed needs to act to the official data (it is what the media and most of America sees), then are we setting up for a policy mistake?
Now, let me show you why I'm wary on Treasuries and stocks:
Yields
I think we continue to drift higher. More on fear of deficits and positioning. Major bond traders keep “buying the dip” only to get forced out.
While I am not a “chartist” I do look at them and this seems like the third year in a row that we see Treasury yields move higher virtually every day. On news that should be bad for Treasuries, they behave badly. On news that should be good for Treasuries, they barely move, and often seem to reverse course of the trading day.
From a “fundamental” standpoint, I want to buy Treasuries, but the market seems broken, so I’m reluctant to do that. The one thing that could turn Treasuries around early this week, is the fact that the long dated Treasury auctions are behind us (though corporate supply remains high).
Equities
There are questions about stock leadership. There are questions about our political leadership. There are questions about future policies. There are questions about the impact on rates.
I did buy the dip on Friday in QQQ, but resold it into the close and am remaining very cautious here. Bitcoin, which it seems crazy to be even having “strategic reserve” discussions about, also did poorly. Not only do I see crypto as a signal (will the new administration buy Bitcoin as they seem to have indicated/hinted at/promised), but also as part of the overall wealth effect. Furthermore, MicroStrategy MSTR is only about 0.4% of the Nasdaq 100, there is now a direct connection to bitcoin, via MSTR into a major stock index. I don’t want to overstate that, but at the same time, it is worth being aware of.
So be cautious with both bonds and stocks. Wait for better buying opportunity and I wish everyone affected by the fires in California my best wishes.
At the time of publication, Tchir was short QQQ.
