Job Losses May Have Seen Their Peak

The govt. jobs report this morning showed much fewer job losses than economists were expecting. Nonfarm payrolls fell -345,000 in May, vs. consensus of -520,000. As depicted in the chart above, you can see that the pace of job losses has slowed materially since it peaked in January.

We know that employment is a lagging indicator of the economy. So if the worst is behind us, in terms of job losses, it is safe to assume that the worst is also behind us in terms of economic growth. But I think the sharp rise in global equities and commodities already gave us a better wake up call to this notion, while today's jobs report is just another datapoint in support of that thesis.

I don't mean to gloss over the fact that the economy is still very weak, and the job losses are very real. But as investors, we need to be able to put this data into perspective and make better decisions to hopefully profit from it.

The stock market bounced sharply on the better than expected news, but it was immediately sold into, such that within the first hour of trading, the indexes reversed back into negative territory. That has some of the bears calling for a short-term market top, which a bearish reversal day could indicate. This could certainly be the case, but I would expect any pullback to again be relative short-lived.

Rising yields are presenting a worry for investors, imo, as the 10-year yield spikes higher again, reaching 3.85% currently. The dollar is bouncing hard today, which is weighing on oil, gold, and commodities. We could be seeing a mini rebound in the dollar, which would take the shine off commodities, and could keep the overall market in check at the same time. But the VIX is still below that 30 level I keep mentioning (29.85).

Trading comment: I took some partial profits in VMW on this morning's spike, but haven't done much else. I actually would welcome a bit more of a pullback. I would like to add to some of the big bank stocks (BAC, WFC, GS) as well as the oil services etf (IEZ). In trading accounts, I probably would look to add some index exposure for another push higher in the markets into quarter-end, as I expect some pronounced window dressing this time around by portfolio managers that don't want to look underinvested in their quarterly reports to investors.

long VMW