ACTV - The Jobs Report: A Soft Landing At Hand
2024-05-03 11:22:38 ET
Summary
- Stock prices soar pre-market, as 2-year Treasury yield falls, due to anticipation of rate cuts starting sooner and larger numbers.
- Payroll report shows lower job numbers, decrease in wage growth, and the general softening that the Fed wants to see.
- Consumer spending is a better leading indicator, and this report confirms softer spending and a re-entrenchment of the disinflationary trend.
Why did stock prices soar yesterday? Look no further than the 2-year Treasury yield, which has fallen 17 basis points to 4.87% from its high of 5.04% the day before the Fed’s meeting. That is the lever that should drive the major market averages higher, as investors anticipate rate cuts coming sooner and in larger numbers than they did before Wednesday, leading to a gradually declining 2-year yield. Investors will be looking closely at every high-frequency economic report in the coming weeks to determine the probability of three potential outcomes. The economy could continue to run too hot, fueling higher rates of inflation, which would drive the 2-year yield north of 5%. The economy could slow down too rapidly, running the risk of recession, resulting in a collapse in the 2-year yield in anticipation of hasty rate cuts from the Fed. Lastly, the economy could soften just enough to reinforce the disinflationary trend and land softly, leading to a gradual decline in the 2-year back down to 4%. I think you know I’ve been forecasting the third option for a very long time, and this morning’s payroll report reinforces that outlook....
The Jobs Report: A Soft Landing At Hand