A NFP preview

Mid-week market update:  I know that we mostly focus on the outlook for the stock market in these pages, but investors should cast their eyes on the bond market once in a while, as they might learn something. Bond prices staged an upside breakout, which is a signal of economic weakness.



As the next major economic data point is the March Employment Report due Friday morning, this is a good time to review the jobs market outlook, which is probably more important  to the bond market than the stock market.



Signs of weakness

There are many signs that the jobs market is weakening. The February JOLTS report showed a decline in job openings that was beyond market expectations.



Leading indicators, such as temp jobs (blue line) and the quits/layoffs ratio (red line), were not as calamitous. Nevertheless, the quits/layoffs ratio from the JOLTS report shows a noisy decline, indicating job market weakness.



Mike McDonough, the Chief Economist at Bloomberg Financial Products, observed that mentions of “job cuts” art now starting to exceed “job shortages” on company earnings calls, which are signs of labor market softness.



As well, ISM Manufacturing PMI fell and badly missed expectations. Moreover, ISM Manufacturing Employment showed similar signs of weakness.




Soft, but not that soft

While the jobs market is showing signs of softness, it’s not a disaster. ISM Non-Manufacturing Employment rose, though it missed expectations.



Initial jobless claims (blue line) have been remarkably resilient. For some context on the strength of the economy, initial claims normalized for population (red line) made an all-time line before the onset of the pandemic and readings remain low by historical standards. (The figures are shown in log scale in order to minimize the distortions caused by the pandemic jobless spike).



Here is a close-up of initial claims data, which is stable but exhibiting minor signs of weakness.





In conclusion, the March Employment Report this Friday will probably elicit a market reaction, but unfortunately the markets won’t be open until Monday. Expect minor signs of weakness, but not that weak. If I am right, bond prices should rally, but what happens to stock prices will be an open question. The S&P 500 pulled back after testing resistance amidst an overbought condition. Likely support can be found at the 50 dma at about 4027.



2 thoughts on “A NFP preview

  1. Any opinion on Muni bonds? I am finding AA-AAA rated munis for around 4.2%. These are Federal tax free and state tax free also if these are home state bonds. This allocation is purely for generating (tax free) income.

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