Friday, April 04, 2014

Bond Market Not Impressed With Jobs Numbers

The government payrolls report out this morning showed the economy added 192,000 jobs in March.  This is not a bad figure, although it was below consensus estimates.  And the unemployment rate held steady at 6.7%.

So if the bond market thinks the economy is improving why are bond yields dropping so much today? The yield on the 10-year Treasury is dropping all the way back to 2.72% after reaching 2.80% yesterday and looking like yields were in a new uptrend.

In Europe, although there has been much talk about the economic recovery taking hold, the ECB is contemplating a quantitative easing program.  And there have been several datapoints pointing to a slowdown in China.  So the tealeaves of the global economic recovery remain mixed, although the Fed remains on target to reduce its asset purchases throughout the year.  Maybe the Fed has more confidence in the US economy than the bond market, at least today.

The volatility indexes are confusing today also.  The VIX is down again near the 13 level, but the Nasdaq volatility index (VXN) is more than 8% higher today to 18.40. 

So money continues to rotate out of high beta stocks and into more value type stocks.  The S&P 500 has been flat to positive most of the day while the Nasdaq is down quite a bit and breaking back below its 50-day average.

Trading comment: Although the last couple of days looked like the uptrend would resume, the pressure that has resurfaced in the Nasdaq is still an area of concern to us.  The rotation into more defensive areas of the stock market could just be initial complacency.  But the risk remains that the selloff in the high growth stocks spreads to the overall market.  As such, we continue to adopt a prudent stance.


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