Does Jobs Report Indicate More Slowing Growth?
The jobs report did come in much weaker than expected, so this time around the ADP report actually did foreshadow more to come. March nonfarm payrolls rose just 88,000 versus expectations for something closer to 190,000. So that is a big drop.
The unemployment rate declined to 7.6%, but that figure is misleading. The decline was not due to job growth but rather to a drop in the labor force participation rate. That rate has hit levels not seen since the 1970s. If the participation rate had remained constant the unemployment rate would have actually risen to 7.9%.
The disappointing jobs report hit the equities market early, with the Dow opening down some 150 points. We will see the obligatory bounce during the trading session but how the market closes today will have more impact on trader's psyche heading into next week.
The bond market is acting like the jobs report is indicative of a bigger slowdown in the economy. The 10-year yield has dropped all the way down to 1.69%, back to levels last touched in December. I think a lot of folks were caught leaning the wrong way on bonds, as most were positioned for rates to go up. That could be exacerbating today's action, but I don't feel that these low yields are sustainable even in a 2% growth environment.
Asian markets were mixed overnight. Hong Kong was lower, while Japan continued to rally on QE news from the BofJ yesterday. China remained closed for a holiday.
Europe is also lower today. Reports indicate that the troika may delay its next tranche of aid to Greece. Elsewhere, French President Hollande's approval rating has sunk to a new low of 27%.
The dollar is lower today and commodities are mixed. Oil prices are lower near $92.50. Copper prices are also lower. But gold prices are higher in a flight to safety move, pushing gold back near the $1565 level.
The volatility index spiked higher after the open. It is currently up 5% near the 15 level that we have been highlighting.
Trading comment: The recent breakdown in the Russell 2000 small-cap index turned out to be a good leading indicator of broader weakness. The S&P 500 got down to 1540 this morning, while its 50-day average is closer to 1530. I think folks will be worried about economic growth slowing after today's jobs report. Also, FFIV lowered its earnings guidance last night, and that is hitting the tech sector. So there is likely to be some caution ahead of earnings season as well. Both of these factors likely increases the chances that the market has more work to do in this nascent correction. The recent uptrend has been in place for months, and some consolidation is certainly overdue. So we will look to put new money to work in tranches as opposed to all in one fell swoop.