The headlines look very strong.

Big beat (256k vs. 165k expectations) on the Establishment data. The beat was all in private payrolls (very good). Downward revisions, but only 8k (not bad).

Unemployment rate drops to 4.1% (the Household Survey added 478k – which catches up on some recent weak prints relative to the Establishment Survey).

Annual earnings ticked down marginally, but hours worked remained the same – call it a “wash?”

I continue to believe that seasonal adjustment factors overstate data during this time of the year (our main reason for thinking that we would get a strong report), but in any case markets will have to react to this data.

With signs that inflation is stubborn, if not increasing (in response to people buying goods ahead of potential tariffs, etc.), with limited hopes of containing the deficit, and a labor market that (at least officially) remains strong, the Fed will be very slow to make the next cut.

We have argued that the neutral rate may well be as high as 4% in this environment and we see no reason to lower that.

The front end of the curve needs to continue to price in a slow Fed (that is almost done).

The long end of the curve needs to price in deficits, supply, and the risk that foreign buyers won’t buy as much debt as some may not like the rhetoric coming out of D.C. (a minor, maybe even trivial issue at the moment, but one that bears watching).

Can stocks do well if 10s get into a 4.8% to 5% range? Possibly, but only if the “market positive” plans (from the new administration) seem likely to be implemented on a timely basis. The jury is still out on this. Lots of reasons to still believe, but so much got priced in that any doubt creeping in will impact stocks negatively.

I see 10s at 4.7% to 4.9% (and am starting to get an itchy trigger finger to buy long-dated bonds).

Equities should see a pull back, but this will be a “messy” traders-oriented market, so will likely add some equity risk on a dip of 2% or more (if we get that far today).

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