Today we have an instant(ish) reaction, rather than an instant reaction, as I was on Yahoo Finance breaking down the data live and then had some technical difficulties.

When looking at the “preponderance” of evidence on the jobs data (JOLTS, ADP, and NFP), I cannot see how the Fed goes 50 bps in September, without a reasonably aggressive change in stance.

The unemployment rate at 4.2% is important. The Sahm Rule, with some arguing whether or not it was triggered last month, is definitively not triggered here as the unemployment rate dipped, and the lowest 3-month average in the past year is slightly higher (by my quick calculation). The decrease was due to the Household Survey generating jobs (in fact it was slightly higher than the Establishment Survey this month).

Add in the fact that average hours worked (and hourly pay) ticked up slightly, and there are some signs of stability in the labor market.

I even liked that the “birth/death” model “only” generated 100k jobs, so it wasn’t as disproportionately large as it has been.

Finally, on the “positive” side, my view is that seasonal adjustments overstated labor market strength in Q1 and are potentially understating it in Q3.

There are some negatives:

• Downward revisions, again!
• The miss was entirely attributable to private payrolls (I’d prefer the misses to be on government payrolls).
• According to the Household Survey, there were 527k part-time jobs created, while the economy lost 438k full-time jobs (that number is volatile, but worth noting).
• Downward revisions, again! (Yes, I felt obligated to mention that twice).

On balance, I don’t see how the Fed gets to 50 bps in September. However, the market is pricing in a 44% chance. The market is also pricing in 75 bps by the end of the November meeting. Possible, but that might be aggressive (without further deterioration in the labor market), which isn’t certain.

Bottom Line

Bond markets are ahead of themselves on the doom and gloom/rate cut front. I’m generally happy to be in the doom and gloom ranks, but I’m leaning towards more of a “bumpy” and “rough patches” type of landing scenario, which I place between the recession and “soft” landing scenarios.

Valuation risks remain high for some high-multiple stocks and the market should prepare for a Fed that plods along – i.e., doesn’t cut rates fast enough relative to the data to support stocks and the economy fully.

Nibble at value and small caps and continue to trade the Nasdaq 100 from a “sell the rips” mindset (like the one we had since the data came out).

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