This Bias Can Create a 'Beat' in the Jobs Data
As "jobs week" kicks off, I'm not prepared to bet on the data being week enough to move the needle for the Fed.
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Stocks (and crypto) did well after the speaker was picked on the first vote. While there were some delays, the whole thing went relatively smoothly, which helps all of the “Trump trades.”
I continue to expect D.C. to be erratic in terms of news flow for markets, but this was a good sign heading into this week.
Treasury Yields
I am raising my near-term target on 10s to 4.75%. With the 10-year and 30-year auctions this week, that should put some pressure on treasuries. With a very heavy corporate calendar, there should be additional pressure on yields. While the D.C. news was good for stocks, it wasn’t great for bonds as it paves the way for higher deficits (in spite of what DOGE might be able to do).
Jobs vs. Inflation
This is jobs week. We get JOLTs, ADP and NFP. Consensus is that the reports will be mediocre at best (160,000 estimate on NFP headline). If anything, the “whisper” number seems even lower. While that is completely in line with my take on the economy, there are two main reasons I am not prepared to bet on the jobs data being weak enough to really move the needle for the Fed:
- The Household (used for the Unemployment Rate) has been significantly lower than the Establishment number, so there is some reasonable probability that the data will catch up, keeping the unemployment rate well under control.
- We have argued that the seasonal adjustments, while “normalizing” are still off due to including COVID-19 and not adapting rapidly enough to the important of weather in the south versus the north. Just like last year, we believe there is a bias in the seasonal adjustments that can create a “beat” in the jobs data.
Whatever is going to happen on the tariff front, companies have been purchasing goods ahead of the potential risk. We do think the risk is now higher than the market believes, primarily because China did not buy the agricultural goods they promised to buy last time, and President Elect Trump will not let that happen again on his watch. The logical reaction by companies and the underestimated risk of tough trade talks will add to inflation pressure. While not making headlines, the risk of a dock worker strike could also cause inflation fears to rise.
The inability to get inflation closer to 2% is likely to remain a theme (the Atlanta GDPNow estimate for PCE has been back above 3% for the last month).
We are looking for data and narratives that:
- Inflation is not only alive, but possibly rising again
- Jobs, while not robust, are not weak enough to compel the Fed to cut
I fully expect that in the coming months, I will be calling for more rate cuts than the market has priced in, but it is premature to move in that direction.
Bottom Line
Be a bit cautious on yield based products (though I am looking to buy closed end muni funds on weakness — see best ideas of 2025).
Will be adding to positions in the stock market form best of 2025, and will continue to trade this market — not getting overly bullish or bearish as I find it difficult to believe D.C., an important market driver, will play out smoothly.
At the time of publication, Tchir had no positions in any securities mentioned.
