Good morning,
Wednesday’s Morning Note asked whether markets had returned to normal. Yesterday’s market action went beyond normal and felt like a flashback to any one of many rally days from the 2023-24 bull market. Strong tech earnings boosted the S&P 500 and Nasdaq 100, with Microsoft Corp. and Meta Platforms Inc. jumping up on upbeat results. Treasury yields rose across the curve and spreads flattened as investors curbed their bets on US interest-rate cuts this year. Apart from tech, the risk-on mood was also buoyed by the prospect of trade-talk progress with China, following a report that the US has been proactively reaching out to China through various channels. The dollar rose while the yen fell after the Bank of Japan said it would take longer than it previously thought to hit its inflation target. In commodities, gold dropped to a two-week low during the session on signs of potential headway between the US and other countries on tariff talks. Bitcoin rose back above $96,000 on the back of investors’ renewed appetite for risk. Like I said … better than normal.
I believe an economic slowdown is unavoidable, shy of a 180-degree reversal of policy by the White House. I do not think markets have priced in an economic slowdown. I would concede, however, that during this 90-day freeze of reciprocal tariffs, probabilities favor better tariff news vs worse tariff headlines (worse has been theoretically “frozen”). And it is probable that hard data reflecting any slowdown will not show up before the “freeze” expires. In other words, markets may be fine for two months.
This morning’s nonfarm payroll data is obviously the highlight of the day, as it presumably offers fresh insight into the state of the economy. You could argue that labor is a lagging indicator. Still, it seems that there is little doubt that the labor market has weakened…obviously everyone wants to see by how much this morning.
And the answer is … not much weakness. The employment data was a good, strong report showing little, if any, weakness. The caveat is that this data precedes the tariff shock. Nevertheless, Futures are up +.75%. Let’s enjoy it while it lasts. Have a great weekend.
Be well,
Mike