Will Massive Downward Jobs Revisions Shift the Market Mood?
At some point, bad news is simply going to be bad news.
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Indexes are holding steady early on Tuesday morning as investors await the Bureau of Labor Statistics' preliminary employment data revisions for the year through March. There is likely to be a substantial downward revision in the number of jobs added.
This news is well-anticipated at this point and won't come as a surprise to the market. Indded, it is one of the reasons the market believes in the inevitability of a Fed interest rate cut next week and a series of cuts following that one.
The market has continued to rally on poor economic news and does not appear to have fully priced in the dovish pivot indicated by Jerome Powell at Jackson Hole. Although the odds of rate cuts have been high for a while, the likelihood of aggressive cutting is building. The market now sees an 11% chance of a 0.5% cut on September 17.
The key question for investors is how much longer bad economic news can drive the market higher because it produces dovish Fed policy. At some point, bad news is simply going to be bad news, but the technical action is not reflecting that currently.
The payroll revisions on Tuesday will be of particular interest because they will highlight some real economic weakness that has been covered up for years. There has been a pattern for years now of strong monthly gains that are totally wiped out by later revisions. The revisions do not receive nearly the same level of attention as the initial reports and help to maintain the illusion of economic strength.
After Tuesday's payroll revisions, investors will contemplate inflation data in the form of PPI on Wednesday and CPI on Thursday. The inflation issue has lost its bite as a market negative, but hot numbers will create a little bit of a dilemma for the Fed, which has shifted its focus to economic growth in the form of jobs.
Overall, there continues to be some very good price action in individual stocks. There is choppiness, but many pockets of strength. Tuesday morning, data centers are in the spotlight after a significant deal between Microsoft MSFT and Nebius Group NBIS.
It is a healthy market environment, but we'll see if a significant revision in jobs numbers impacts the mood.
At the time of publication, Rev Shark was long NBIS.
