Weaker Start on Stronger Payrolls Data

This morning's nonfarm payroll count came in at 372k versus a 268k consensus.  Unemployment and wages held steady (with a small +0.1% revision to last month's wage growth).  This was enough strength for bonds to sell off at a moderately brisk pace to start to the domestic session.  After a brief attempt at a supportive bounce, yields moved even higher.

As the chart shows, stocks lost ground at first.  This is counter-intuitive, of course, because if we assume that a stronger economic report is pushing bond yields higher, the classic correlation would suggest higher stock prices as well.  So why did we see the opposite?  In a word: the Fed.

While it's nowhere near the same level as bonds, the stock market also trades through the filter of "how will this data impact Fed policy?"  Stronger data means the Fed is that much more likely to err on the side of policy tightening, which is a falling tide that hurts all boats. 

In other words, good data is bad for both stocks and bonds.  It's bad for bonds on 2 fronts (Fed + stronger econ is always bad for bonds, all other things being equal).  It's bad for stocks on only one front (the Fed), and that's why we see more back and forth in stocks following big-ticket data that shapes Fed expectations. 

Here are a few bonus charts showing how the job counts stack up.

The proverbial "V-shaped recovery."

And when we switch to private payrolls (non-gov jobs), the labor market has now fully closed the pre-covid gap.