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Whatever inhibitions market participants had yesterday about technology stocks and growth stocks were set aside in yesterday's last hour of trading. That final hour was the finest hour that secured another record high for the Dow Jones Industrial Average, brought the S&P 500 back to the doorstep of a new closing high, and rescued the S&P 500 information technology sector from another swoon.
Why did it happen? One answer that would probably suffice is the answer to a 3-year old's constant "Why" questions and that would be the thoughtful, experiential, mature, and parental-sanctioned answer of "because."
It happened, because that's what this bull market is known for: buying on weakness and defying expectations for a more meaningful selloff at every turn lower.
There might be contentions that it was frontrunning an employment report that would ignite more reopening enthusiasm. Okay, but that thinking has been embedded in consensus estimates all week that called for nonfarm payrolls to increase in the neighborhood of 1 million, and yet, the growth stocks and broader market were sluggish all week until yesterday's final hour.
Well, guess what? The growth stocks are ready to rally again today. You know why? Because... the April employment report was surprisingly weak, with just 266,000 jobs added to nonfarm payrolls and downward revisions to March.
The key takeaway from the report is that net job gains were negative, excluding the leisure and hospitality industry, which added 331,000 jobs. It is a stunning slowdown from March and has ignited the argument that extended unemployment benefits have created a disincentive to look for work. In turn, it has also ignited the idea that the market has gotten ahead of itself with its recovery/reopening enthusiasm.
The Treasury market seized on the last point and the recognition that average hourly earnings were up just 0.3% year-over-year. The 10-yr note yield fell as low as 1.48% from yesterday's settlement of 1.56%. It is currently trading at 1.52%.
The S&P futures are up 13 points and are trading 0.3% above fair value, the Nasdaq 100 futures are up 169 points and are trading 1.2% above fair value, and the Dow Jones Industrial Average futures are down 26 points and are trading 0.1% below fair value.
The notable headlines from the Employment Situation Report are as follows:
- April nonfarm payrolls increased by 266,000 (Briefing.com consensus 1,000,000). The 3-month average for total nonfarm payrolls increased to 524,000 from 513,000 in March.
- March nonfarm payrolls revised to 770,000 from 916,000
- February nonfarm payrolls revised to 536,000 from 468,000
- April private sector payrolls increased by 218,000 (Briefing.com consensus 820,000)
- March private sector payrolls revised to 708,000 from 780,000
- February private sector payrolls revised to 622,000 from 558,000
- April unemployment rate was 6.1% (Briefing.com consensus 5.8%), versus 6.0% in March
- Persons unemployed for 27 weeks or more accounted for 43.0% of the unemployed versus 43.4% in March
- The U6 unemployment rate, which accounts for unemployed and underemployed workers, was 10.4%, versus 10.7% in March
- April average hourly earnings increased 0.7% (Briefing.com consensus -0.1%) versus a 0.1% decrease in March
- Over the last 12 months, average hourly earnings have risen just 0.3%, versus 4.2% for the 12 months ending in March
- The average workweek in April was 35.0 hours (Briefing.com consensus 34.9), versus 34.9 hours in March
- Manufacturing workweek was unchanged at 40.5 hours
- Factory overtime was unchanged at 3.2 hours
- The labor force participation rate was 61.7%, versus 61.5% in March.
- The employment-population ratio increased to 57.9% from 57.8% in March.
This employment report is trumping all else as a talking point. It has completely overshadowed the huge wave of earnings results that hit since yesterday's close.
We have a sense from the futures market that it will be a mixed open with growth outperforming value. We have a sense that Fed officials have an intellectual sense of gratification in their policy view to go along with a personal sense of disappointment in the employment report. We have a sense that the market might choose to look through this report as a consequence of fiscal stimulus that will get corrected after extended unemployment benefits expire.
In brief, the senses are all engaged after a stunning report like this one. The stock market will make its way through the day, as it typically does, with twists and turns and potentially with some surprises. We don't have a sense, though, how it will end.
Why? Because.
