It has been a great week so far for the stock market. The S&P 500 is up 3.3%, enjoying a confluence of catalysts that have brought buyers in from the sidelines.
Things got started with a sense that the market was oversold and due for a bounce, and then got cranked up on hopes that the Fed will soon be cutting interest rates and that the threatened tariff on imported goods from Mexico will be averted.
The rate-cut expectations have been the principal driver, as some cautious-minded observations from Fed officials, including Fed Chair Powell, resuscitated the market's belief in the Fed put (i.e. see stock prices go down a lot, see the Fed cut rates to stop the slide).
That belief is getting some backing from the May employment report, which was soft on job creation and soft on average hourly earnings growth. To that end, the key takeaway from the report is that it gives the Fed some data-based cover to cut the target range for the fed funds rate in the not-too-distant future, assuming some positive development on the trade front doesn't unleash animal spirits in the capital markets and global economy.
The Treasury market seems to see the possibility of a rate cut soon. The 2-yr note yield, which was at 1.87% ahead of the employment release, is now down to 1.78%. The U.S. Dollar Index, which was unchanged ahead of the employment release, is now down 0.4% to 96.68.
The S&P futures, which were up eight points ahead of the employment release, relinquished that gain immediately after the release but are up eight points again as of this writing. That leaves them 0.4% above fair value, suggesting this week's rally is going to be extended at the opening bell.
Coincidentally, on the heels of the soft payrolls number for May, which flowed on the back of downward revisions for April and March, there was a headline that the U.S. has decided to give some China products additional time to avoid the latest tariff hike.
Other notable headlines from the Employment Situation Report are as follows:
- May nonfarm payrolls increased by 75,000 (Briefing.com consensus 180,000). Over the past three months, job gains have averaged 151,000 per month
- April nonfarm payrolls revised to 224,000 from 263,000
- March nonfarm payrolls revised to 153,000 from 189,000
- May private sector payrolls increased by 90,000 (Briefing.com consensus 170,000)
- April private sector payrolls revised to 205,000 from 236,000
- March private sector payrolls revised to 153,000 from 179,000
- May unemployment rate was 3.6% (Briefing.com consensus 3.7%), versus 3.6% in April
- Persons unemployed for 27 weeks or more accounted for 22.4% of the unemployed versus 21.1% in April
- The U6 unemployment rate, which accounts for unemployed and underemployed workers, was 7.1%, versus 7.3% in April
- May average hourly earnings were up 0.2% (Briefing.com consensus +0.3%), after increasing 0.2% in April
- Over the last 12 months, average hourly earnings have risen 3.1%, versus 3.2% for the 12 months ending in April
- The average workweek in May was 34.4 hours (Briefing.com consensus 34.5), versus 34.4 hours in April
- Manufacturing workweek was unchanged at 40.6 hours
- Factory overtime was unchanged at 3.4 hours
- The labor force participation rate was 62.8% in May versus 62.8% in April
Separately, negotiations with Mexican officials continue today. There is no word on a deal yet, although it has been said that progress has been made. Still, the party line is that the 5% tariff on imported goods from Mexico remains on track to go into effect on Monday.
Speaking of remaining on track, the stock of recent IPO Beyond Meat (BYND) is up a whopping 27% in pre-market trading after the company delivered better-than-expected results and raised its full-year revenue outlook in its first reported quarter as a public company.