Jobs Strength Turns Heads, Sparking 'Sell the News' Reaction
Here's what the numbers mean for the Fed, the Mag 7 and markets.
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Wednesday morning’s employment data caught the market off guard by coming in stronger than expected. While that created a gap-up open to start the day, the gains are not holding up well
Nonfarm payrolls exceeded expectations and the unemployment rate actually ticked lower instead of holding steady. While government hiring slipped, the private sector outperformed. The bond market reacted with yields jumping as traders trimmed bets on near-term rate cuts.
These solid numbers give the Fed a pass for now. There is nothing in this data that forces the Fed to rush toward easing, and it buys them plenty of time to stay patient. Fed Fund Futures have already pushed back hopes for a cut to July.
Cracks Beneath the Surface
While the private sector employment strength is positive, factors including labor participation and hours worked are problematic and indicate some underlying weakness. The labor market isn't roaring, but it definitely is not collapsing, and that is a major positive.
Unfortunately, market participants are using the early strength as an opportunity to sell. The Russell 2000 (IWM) has quickly gone from green to red, and all the major indexes are off their opening highs. Breadth is barely positive with about 51% advancers.
Risk On in the Mag 7
Typically, good economic news like this drives a "risk off" move for big investors. They tend to focus on buying the most liquid names such as Apple (AAPL) , Tesla (TSLA) , and Nvidia (NVDA) to hide out. That is helping to keep the indexes green so far, but the selling in the broader market is intensifying.
This is looking like a very strong "sell the news" reaction, even though many investors were already anticipating a weak report. This is very negative technical and price action, and I’m seeing some substantial drops developing in individual names.
I want to buy some dips, but I’m going to wait a while and see if some support levels form.
At the time of publication, Rev Shark was long NVDA.
