Waiting for the July Jobs Report

Mid-week market update: The July Employment Report has the potential to be a game changer in how the market perceives the recovery. Estimates of job gains are all over the place, and the median stands at 1.5 million.


High frequency economic data has been weakening, and I am inclined to taken the “under” consensus on the print. This could be a big negative surprise for the market and spark a risk-off episode.

Soft high frequency data

There is a flood of high frequency data that suggests a soft Nonfarm Payroll (NFP) report. Much of the gains in employment in recent reports are attributable to the return from furlough of low-wage service workers. A new study and poll of over 6,400 US respondents shows that workers previously laid off and re-hired are being laid off again.


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Small businesses are highly sensitive economic barometers because of their low bargaining power. Homebase indicates that small business employment has flattened out. If we align the Homebase data to the Job Report reporting dates, it suggests a job gain of about 1.5 million, which is with the consensus forecast.



Using high frequency Census data, former Treasury official Ernie Tedeschi estimated the NFP print to be a loss of -2.2 to -4.7 million jobs, which would be a huge negative shock.


The ADP report of private sector jobs came in at 167K, which is well below the consensus of 1.5 million jobs. However, the ADP data can be a noisy preview of the NFP report.  I conclude that the risk to the NFP report asymmetrically skewed to the downside, and a big negative print is not out of the question.


CARES Act 2.0

The other uncertainty that overhangs the market is the negotiations between Democrats and Republicans over a second stimulus package. There is a soft deadline Friday as the Senate is scheduled to recess on that day. The House is already in recess. However, lawmakers can be recalled to pass a bill with 24 hours notice.
There are some signs of progress, but both sides are reportedly far apart on some key issues. As 15-20 Republican Senators will not approve any further aid, the White House is dependent on the support of a substantial number of Democratic Senators to pass legislation. This gives the Democrats a strong bargaining position. Bloomberg reports that some of the major contentious points are the Democrats’ insistence on state and local government aid, and the Republicans’ desire for liability protection for employers.
The rescue package negotiations of 2020 have become the Sino-American trade negotiations of 2019. I find it hard to believe that Trump would cave to Democratic demands and a humiliating legislative defeat less than 100 days ahead of an election, but I have been wrong on these forecasts before. Bear in mind that even if there is a deal, some precious time has been lost and the aim of new legislation will be to extract the survivors that fell into the fiscal canyon, rather than preventing people from falling off the fiscal cliff. It is unclear the level of damage done to the economy until we know the nature of the rescue package.


The market reaction

The market’s reaction to the current economic outlook has been mixed. The risk-on rally from the March lows is largely attributable to the expectations of a V-shaped recovery, not just in the US but globally. One useful cyclical indicator is the copper/gold ratio, which has closely tracked the 10-year Treasury yield. These two indicators have diverged recently. The copper/gold ratio rose, and then fell. The reversal can be partly explained by the strength in gold prices. At the same time, the 10-year Treasury yield fell to all-time lows, which is a risk-off signal. Which is right?



The decline in bond yields and rally in bond prices are technically significant. The 10-year yield broke a significant support while tracing out a head and shoulders formation, with a target of 0.23%. Similarly, the long bond ETF (TLT) staged an upside inverse head and shoulders breakout with an upside target of 188. Both breakouts are holding so far.


As I pointed out before, the SPX appears to be tracing an Elliot Wave diagonal triangle, which is an ending pattern. As well, the higher highs are not being confirmed from a momentum or breadth perspective.


The NASDAQ 100, which have been the market leadership, has staged an upside breakout through resistance.


We could see some real fireworks this Friday from both the NFP report and the soft deadline of CARES Act 2.0 negotiations.

Disclosure: Long SPXU

79 thoughts on “Waiting for the July Jobs Report

  1. “We are probably going to get another big positive number in the jobs report for July, for which the survey week is this one. On the other hand, the slowdown in gains in the initial claims numbers means that job gains are likely to slow in the next several jobs reports. And that does not take into account any large-scale re-closing of portions of the economy in many States.”

    Two weeks ago, New Deal Democrat called big positive July number. But like Cam says, other analysts are probably saying big negative July number. We’ll see Friday.


    1. I think expectations are for a positive surprise – which means the only surprise possible is negative.

  2. Follow on to Sunday’s post-

    Live version of the Eagles playing ‘Peaceful, Easy Feeling’ in Melbourne ~2005.


    The Sixties really was a magical time for music. I remember Tim Schmit as the bassist for Poco – still touring at age 72! Joe Walsh started his career with the James Gang – I caught one of his concerts in Pittsburgh in 1971. My younger brother still plays guitar-> he started training with a teacher in Carmel in 1969 – when we moved to Pittsburgh from the Bay Area in ’70, he was not only one of the few Chinese-Americans at our high school, but also the only guy with hair down to his shoulders. I can still recall the comments re ‘is that a boy or a girl’ during registration. By the end of the school year, he brought down the house with a searing solo at the annual Talent Show and was invited to tour with a local rock band (which he turned down).

    One reason I take today’s Robinhood traders seriously-> never underestimate the talent a new generation can bring to a profession. Trading may never be the same.

    1. There’s a grain (or more) of truth in every parody. It’s unconscionable that stimulus payments truly needed by Americans are being held up by pork-barrel politics – but any shrewd negotiator understands it’s part of the game.

  3. ‘It’s the economy, stupid’ was a phrase coined by James Carville during the 1992 Presidential election and became an underlying strategy to successfully unseat a sitting President. Trump, for his own good, will pay heed to that message for any reasonable shot at winning in November. It’s not what he compromises on but how the economy is faring closer to the election that will matter. He will sacrifice the Senators chances of re-election.
    Market is likely to go down if it’s increasingly apparent that Biden will win.

  4. The parties are no where close. McConnell says the Dems have hardly moved off their $3 trillion position.

    Trump won’t accept any of that. He is ready to EO the payroll tax cut and who knows what else. How the markets will take that is anyone’s guess.

    1. ‘Paroll Tax cut’ can only be done by Congress. POTUS can defer the payment of such taxes for a period of time and pledge to forgive them later. It does not benefit the unemployed – both who are getting and not getting unemployment compensation. The basic rationale is flawed. But that won’t stop Trump. IMO for the economy to keep getting traction, focus should be on unemployed.

      1. I’m not so sure. I still contend that there is considerable uncommitted money in the Treasury’s account. Why is it there ? We’ve got the record of this account going back and it generally holds about 5 weeks of US payments (recently 400 Billion), but currently holds nearly 1.8 Trillion. It must be he’s going to use it for something.


  5. I like the play on bonds, but then again, counting on Fed intervention to keep rates low.

    1. Powell said they would stay low for a long time. But, his idea of low might be different than yours or mine.

  6. The big question for today is, do we hedge long positions this afternoon in anticipation of a crash tomorrow or not?

    1. fwiw, I was about to tell Mark that in a normal year we would be leaving for a late summer vacation tomorrow. The number of times the market has declined sharply during our August vacations is definitely statistically significant. We’ll find out whether or not the seasonality pattern holds up during this year’s economic shutdown.

    2. Maybe I’ll do a partial hedge on my longs today. In the larger scheme I’m only about 15% in the market as it is. I’ve been waiting for a green light from Cam to begin increasing that percentage. Still the account was at a new all time high at the close yesterday thanks to Cam’s sell call near the top a few months ago.

      1. A partial hedge of a 15% portfolio. The market is so strong it may just steamroll over whatever hedge you put in front of it. I believe it was Sanjay who said to sit back and wait for an actual pullback before taking action. Or something like that.

        1. What? Sanjay was talking about taking long positions on a pullback. I’m talking about zeroing out my long position with a short hedge in case Cam is right and there is a very negative surprise in the NFP report tomorrow. As rechen2 said yesterday, the only surprise with the NFP would be a negative surprise since everyone is expecting a slight loss to a big gain in new jobs.

          Even though I am only talking about 15% of our account we are still talking about hundreds of thousands of dollars. That’s worth hedging the risk to me.

  7. Welp negotations on the stimulus appear to be a complete mess as of this moment. Trump is opposed to mail in voting, so opposes the post office funding, and thus he is trying a number of workarounds to find the money outside of Congressional approval. Whether and when the market reacts is not known.

  8. The trading volatility around the Friday jobs report seems to have backed off recently – but may return tomorrow. The market can be perverse, inflicting maximum pain on both bulls and bears. My thoughts right now regardless of the numbers-

    (a) The SPX spikes up to 3397+, taking out the bears, then continues to trade in a narrow range all day before selling off hard in the final 15-30 minutes.

    (b) The SPX declines sharply at the open and continues to drift lower all day, reverses hard to turn green – but closes flat on the day.

    (c) Nothing happens either way, leaving us all in purgatory for the weekend.

    Those are the three scenarios for which I have a plan.

  9. https://www.cnn.com/2020/08/06/tech/facebook-work-from-home/index.html

    First time I am seeing July 2021!!
    Other companies will not be too far behind. This is bullish for tech and bearish for landlords. These tech companies are going to post higher profits as real estate rental costs come down. Go figure!!

    That said, somethings got to give. The catalyst may be politics, Clean sweep by Democrats (House, Senate and White House), “October surprise” by Democrats.

    Needed an Air Conditioner. Out of stock. Anyone else finds this strange??

    1. 😐

      As a group, the countries showing lower mortality rates are not exactly known for data transparency and veracity.


      That being said, I do feel market has very heavily discounted the likelihood of a catastrophic covid outcome (health wise).

  10. The US has successfully Japanified its rate regime (zero bound). Stocks are expensive (see Cam’s graphic in the previous post comparing the five largest stocks to the remaining 495.
    Here is one more graphic that does give me the heebie jeebies.

    On the flip side of stocks, bonds are super expensive. It appears that the entire yield curve all the way to 10 years is going to flip in negative territory at some point (unless of course inflation creeps higher, which does not seem likely). The impetus for this would be a weak economy that forces central banks to print more money. Well it is actually not money but print more paper. I stand corrected, and I do not want to insult money, by calling it paper.
    So, what is the way out of this mess? No one really knows how it all ends. That said, some of the relatively cheaper stocks (Value stocks) may well come back into style. These staid stocks may not be flashy like what gets bought and sold by the Robinhoods of this world, but crank out big dividends and are relatively cheaper than the general market (Big Energy, Big tobacco, Big Pharma Hard and soft Big beverages, and perhaps Big banks), I put Big Banks in a different basket all together. Why?
    The US government is in cahoots with Big Tobacco. Once Big Tobacco coughed up the money to Uncle Sam, no one is looking for trouble anymore. Sorry if I sound like a conspiracy theorist, but that is not the intent here.
    In the last decade, Uncle Sam took Big Banks firmly under its wings. Big Banks are now being told when and if they can buy back their own stocks or issue dividends. By that metric, WFC is in the doghouse! Big Banks were always an arm of the US government and so I put them in a different class.
    Utilities are also a business managed by the law makers as their profits are capped by states where they operate.
    After bashing Big Pharma, the governments are likely to be off the backs of these businesses for some time to come. Since the mid 90s, Big Pharma has been in the gunsights of law makers, like Big Oil, for raking in the dough. This is likely to change and Big Pharma is now going to milk as much profits as they can. Just a feeling.
    So what about general stocks like the rest of 495 scrips in the S&P 500? There is a fair chance that Big Central banks (pun intended), will at some point buy stocks (!). After all the US Fed has been all kind of “assets” including Junk. The day is not far, that the US Fed would start buying stocks (after a big decline, of course). So much for American ideas of free market economies. Japan is the guru here, as it has been buying stocks for a while.
    Back a few moons ago, I had written on this platform that the barbaric metal, gold remains a pariah in the eyes of Professionals. It is unloved and under owned, as the smart MBAs in finance, I am told, have no way to value gold as it has no income stream and no supposed intrinsic value. We can leave these counterarguments behind as gold has risen from a bottom of 265$ circa year 2000 to 2100 now, give or take. You can run the numbers and compare them the S&P 500 in year 2000 of 1550 to 3330, now, give or take. You may criticize me here, for picking arbitrary dates (Urban Carmel would criticize me for this and a few other analysts that are smarter than me).
    Based on the above, I sometime wonder, if high quality, wide moat companies with large dividends are likely to become the next go to stocks. These stocks (Cokes, Pepsi, Phillip Morris, JM Smuckers, Exxon Mobil, Chevron, likes of Merck, PFE, you get the drift), are unlikely to go out of style. With the entire yield curve likely to go below zero, all the way to ten years, the yield differential between these stocks and bonds would become uuuuge. I ask the question, are we going to stop going to MacDonald’s with or without a Pandemic, or stop drinking full throttle, sugary Cokes, Pepsies and Stake and Shake milk shakes, even if we get heart disease? My answer is no, based on the famous “lipstick index”.
    Is the world coming a phull circle then, when ugly ducklings like Big staples (read KHC) is going to be the next group to be bid up?
    So here are the questions:
    1. What happened to high quality, wide moat Japanese scrips between 1980-2020 (e.g. NTT, Japan Tobacco, and I am sure there are others)? As the Japanese markets fell in a funk after peak of 1980, did these ugly ducklings become the pretty swans?
    2. Cam, is this time to further lighten up on equity exposure for the investment basket?

    1. D.V. I’m hearing that inventories in the U.S. have been depleted. The analyst was expecting that more U.S. manufacturing is needed to fill those warehouses low on product. The bottom line is that more hiring will happen at the manufacturing level. If it doesn’t we are looking at higher inflation (stagflation).

  11. Jobs report hits consensus.

    Very little reaction.

    Opening a couple of China positions on negative news. FXI/ BABA.

    1. There’s still the inaction by Congress on the Stimulus. I’m conflicted about removing my hedge this morning even though the jobs report was a little better than expected. I’ll have to dig deep into the mind of my inner investor.

    2. I think this is good news is bad news. Republicans dig in because they see their position as working, thus less stimulus needed, while there is a decent probability that the withdrawal of stimulus is premature.

  12. Removed my hedge. I don’t see any selling coming in – at least not due to the jobs report.

    1. Short positions whether they are trades or hedges haven’t been nice to me the last few months.

    1. Dr. Morrow makes sense. Balancing economics, mental with medical need of the people.

      On another note, my wife just got her hair done (in San Mateo) and was very happy. She is not a happy camper along with many other woman in the county. The salon my wife used almost looked like a hospital setting. OMG.

  13. The consolidations in the hourly SPY chart getting smaller and smaller. Somethin’ gotta blow, no? One way or another.

    1. I think we see 3397 today or Monday. No idea what the narrative will be, but no shortage of potentially positive catalysts in Washington.

    2. Cam showed and ascending triangle he called an Elliot Wedge. It looked to me that there was a minor break over the top of the wedge if that means anything.

    1. More power to you len g. If what you say happens, it would be a nice set for gold, say 10-20% where are now.

    2. More power to you len g. If what you say happens, it would be a nice set up for gold, say 10-20% below where we are now.

  14. We got the midday scary drop. 50/50 odds IMO that we see another one near the close, although obviously I would prefer to see a spike up into the close.

    1. Take what he says with a grain of salt. I don’t ever remember a time when Tom Lee has been bearish in all the years I’ve followed him.

  15. “the stock market will start to drive higher on Aug. 14, with the possibility of a 30% rally in store for equity markets over the course of the ensuing two weeks.”

    A gutsy call but I think the logic is not sound, IMO.

    “the national rise in COVID-19 cases have peaked, 20 days later, the market has staged a brisk run-up.”

    If cases peaked July 24th (which looks definitive), the 20th day is August 14th,” Fundstrat wrote.

    1. ‘A gutsy call but I think the logic is not sound, IMO.’

      The market has thrived on illogical moves since the March lows. So IMO, the less sound the logic, the more likely the move 🙂

      1. LOL! But you may be onto something.

        Btw, Puru is finally getting out of his software/SaaS, e-commerce and fintech stocks.

        Seems money is finally rotating out of Work-from-home stocks Covid stocks to non-Covid stocks.

        1. We are probably just two months away from seeing some vaccines become available. That will be the October surprise. But don’t discount a Durham surprise in September. That story might or might not rock the news for months.

          1. The market seems to be forecasting a virus-free world that I am not able to envision yet. The rotation of money from high-fliers into retailers, airlines, casinos, etc. is indicating that either a vaccine is not too far away or the virus is not a mortal danger anymore.

  16. The question is why didn’t Cam cover his short trade today and is he going to remain bearish through the new all time high in the S&P which we will probably see next week? Stay tuned for this weekend’s analysis, as Cam would say.

    1. I should have exited his short trade today, but I was tied up with a minor family crisis. The family dog has a growth and we got the word that it’s probably cancer.

      1. I know a lot about being in that situation, Cam. I just tell the doc that money is no object – what do we need to do. Our present dog is 12 and has serious heart problems. I won’t bore you with what I’m going through to keep her alive. She has her own cardiologist.

  17. With earnings and the jobs report behind us, we’re left with stimulus talks and US-China tensions – maybe the election. Climbing a wall of worry requires something to worry about. When it’s nothing but blue skies – that’s when the market will make a final advance, followed by an extended decline. Just a working hypothesis.

  18. Thoughts on $DXY and its impact on markets? I’m seeing several good traders anticipating a potential short term rally.

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