Stock Markets After US Jobs Data: Will This Spur Fed Rate Cuts?
Stock Markets After US Jobs Data: Will This Spur Fed Rate Cuts?
By:Ilya Spivak
Did stock markets find more than they bargained for in downbeat US jobs data?
- Stock markets briefly cheered weak US jobs data, but optimism was quick to fizzle out
- Belated October and November payrolls numbers seem to support the Fed on rate cuts
- Price action on Wall Street seems to warn that recession worries might be returning
At long last, the markets got a look at official US labor market data. The Bureau of Labor Statistics (BLS) stopped reporting the figures amid the US government shutdown that started on October 1 and lasted for a record-breaking 43 days. The belated release of October and November figures seems to have offered little solace to shell-shocked traders.
The numbers showed that the US economy shed 105,000 jobs October, then added 64,000 in November. September’s result was revised down to a rise of 108,000, from the initially reported gain 119,000. August’s result was also downgraded to a drop of 26,000, compared with the earlier estimate a 4,000-job decline.
US jobs data seems to endorse the Fed argument for lower rates
The unemployment rate – unavailable for October because of a lapse in data collection – rose to 4.6% last month, the highest in four years. Average hourly earnings grew 3.5% year-on-year, making for the weakest rise in wages since May 2021. These figures seem to endorse the Federal Reserve’s view that a shaky labor market demanded rate cuts.
The larger question for market participants is whether these numbers have the potential to alter the central bank’s calculus next year. Officials’ baseline forecast – revealed in an updated Summary of Economic Projections (SEP) last week – called for just one 25-basis-point (bps) rate cut in 2026. The markets are angling for at least two of them.
Fed Chair Jerome Powell has warned that BLS statistics are overstating payrolls growth by approximately 60k per month, implying that the reported monthly job creation average of about 40k actually translates to trend losses of 20k. The numbers now on hand paint a darker picture: average gains of 10.3k adjust to monthly losses of almost 50k.
Soggy stock markets warn not all rate cuts are created equal
The markets initially cheered as these results came across the wires, with the bellwether S&P 500 index of US stocks popping briefly higher. A parallel spike down in two-year Treasury bond rates implies that traders saw the figures as helping to make the case for a more dovish posture next year.
This optimism proved to be short-lived, however. The priced-in probability of a 25bps rate cut in January inched up ever so slightly to 25.5% from 24.4% previously, and stocks crumbled after a mere five minutes of digestion. The S&P 500 finished the day down 0.36%, completing the first three-day losing streak in a month.
The tech-tilted Nasdaq 100 outperformed, finishing the session up 0.15%. The small-cap Russell 2000 index took an outsized beating, shedding 0.56%. Taken together, this price action configuration hints that the jobs numbers were weak enough to fuel recession fears, making the rate cuts they imply seem ominous rather than supportive.
Ilya Spivak, tastylive head of global macro, has over 15 years of experience in trading strategy, and he specializes in identifying thematic moves in currencies, commodities, interest rates and equities. He hosts Macro Money and co-hosts Overtime, Monday-Thursday. @Ilyaspivak
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