Largest downward jobs revision since 2009

The Bureau of Labor Statistics revised its jobs data for the 12 months ending in March 2024, revealing that 818,000 fewer jobs were created than previously reported. Initially, it was believed the economy had added around 2.9 million jobs, but this revision shows that about a third of those jobs were not actually created. This was the largest revision since 2009.

• The calculation of the Non-Farm Payroll numbers is widely criticized
• The BLS makes several adjustments to its survey data, including an adjustment for its “birth/death” model
• This in particular, has been a source of criticism historically because it could inflate numbers incorrectly
• Although the jobs market has not been as strong as we were previously led to believe, the market did not react significantly
• This makes us think that most of this was already priced into the market
• To this point, there were expectations of a large revision, with some estimating as many as 1mm jobs
• The biggest potential problem we find with this is that it may have given the Fed greater confidence that the labor market was strong
• Which is likely one reason they did not begin cutting rates sooner

Jay Powell's Jackson Hole speech

The much-anticipated Jackson Hole Central Bank meeting occurred this week, where all the central bankers from developed countries gathered to discuss interest rate policy. Fed Chair Jay Powell delivered a speech that, as expected, signaled that the Fed is ready to begin cutting interest rates. The market sold off the prior day on worries that the Chairman would be more “hawkish” than he was, so the market regained those losses after his speech.

• Jay Powell delivered what the market expected
• It was the first time he said “they are ready” to cut interest rates
• This likely means the first cut will be next month
• The key question will now be whether it is 25 or 50bps
• However, we do not believe the magnitude of the cut is as important as the direction
• Save for a few months to begin the year, we have known the direction of interest rates are lower since December of last year
• The 10 yr treasury yield has likely already priced this in as it has moved from 4.6% to 3.8% over the last four months

More stocks take lead

The equal-weighted S&P 500 hit all-time highs this week, even as the regular S&P 500 remains just below its peak. This divergence indicates that the market is seeing broader participation, with more companies contributing to the gains rather than the performance being dominated by a few large tech firms.

• This is a healthy development in the market
• We have discussed at length the issue of the market being led by a handful of large tech companies
• However, one thing to note is the divergence in the bond and stock market
• As we mentioned above, the 10-yr yield has come in from 4.6% to 3.8%, which is usually in anticipation of rate cuts
• Rate cuts usually happen as the economy weakens, so stocks hitting all-time highs is contradictory to this
• We are likely to witness more volatility as this conflict works itself through, especially leading up to the election in November

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