the employment report

This morning the Labor Department released its monthly Employment Situation report. The Establishment survey, which is the one Wall Street watches, came in at +261,000 vs. economists’ estimates of +195,000. Financial press commentators went on at length about the “bad” news that the economy continues to run too hot, apparently unaware that the 90% confidence interval for this survey is +/- 120,000 jobs.

Put another way, the report says that chances are good that the economy gained between +140,000 jobs and +320,000. That’s out of a workforce of 160 million+, and something like 3.5 million workers leaving jobs–and about the same number starting new jobs–each month. So the spread between job gainers and job losers came in something like 1.7% wider than the average economist’s guess.

And the unemployment rate went up.

Hard to see what the fuss is about.

treasury bonds

The Treasury yield curve looks something like this:

1-month 2-year 10-year 30-year

Oct 24 3.57% 4.50% 4.25% 4.40%

today 3.75% 4.71% 4.14% 4.18%

So the Fed raised the Fed Funds rate to 3.75% – 4.00%. The yield on the most cash-like Treasuries went up, as one would expect. On the other hand, the yield on the longer-dated issues went down.

Yes, the 24th was a local high point for longer-dated bonds. And, yes, I don’t know much about bonds. Still, the 75bp increase in the FFR doesn’t seem to have moved the long bond. I take this as a positive sign for stocks. Not a bet-the-farm good thing, but a positive.

stock market tone

The US stock market peaked last December 1st. The S&P is down by about a quarter since then, NASDAQ down a third. The Russell 2000, which is tied much more closely to the US economy than the other two indices, peaked five months earlier than the S&P and NASDAQ, and has lost since then about the same as the S&P has.

In a plain-vanilla market downturn, the time that has passed since the top and the depth of the subsequent market decline both suggest to me that it makes more sense to begin to look for signs that the worst is over and to figure how to benefit from this, rather than to concentrate on defending against further declines.

To be clear, I think that making one’s guess about the overall direction of the market to be a, or the, key feature of investment strategy is always a bad idea–and now in particular, when the economic situation, both world and US, is, I think, unusually complicated. Add to that the revival of 19th-century violence-prone right-wing know-nothing extremism in the MAGA movement, which is scarcely an inducement to invest in the domestic economy.

Still, I’ve been noticing that, in what’s very volatile daily trading in individual stocks, some beaten down issues are responding in a strongly positive way to good earnings news. The ones I’m noticing tend to have been crushed over the past year. So they now look reasonable on an asset value basis and are reporting positive earnings surprises. SQ and HOOD are two recent examples. My sense is that neither asset value nor earnings strength would have registered with Wall Street six months ago. Yes, these are special situation stocks. On the other hand, they indicate that bullish sentiment isn’t as completely dead as it was even a month or two ago.