Soft landing, hard landing, how about – Touch and Go Landing? You heard it here first. Boom!
Today the government released the May employment report and the equity market danced in the street. Instead of the expected 190,000 increase in jobs the economy recorded 339,000. The unemployment rate increased from 3.5% to 3.7%. Seems like equity investors saw the “applause” sign lite up.
If you take information as a headline and not as granular, jobs were added but more people stopped working. However not all jobs are created equally. Some jobs are transient and reflect short term whims like retail. Others are more interest rates sensitive like mining or manufacturing. Some are seasonal like auto manufacturing and leisure. But some are more tightly woven into the fabric of a forward-looking economy – health care +76k and government 56k.
Headlines are how we start to disseminate information and are quick drivers of hedging activities, but the commitment of new money sets the direction for broader average movement. The FOMC has taken an extremely aggressive approach to monetary policy which has had a material impact on both large and healthy companies where the earnings on their cash are actually additive to earnings. The higher rates also are a headwind for those smaller growth situations who battle expenses and survival on a weekly basis. If you look at the recent corporate earnings reports in detail, the economy is very healthy.
At the core question of the employment report is are we growing or contracting and from earlier in the year and at this point things look pretty good. Rates have risen, earnings have been revised lower, COVID has worked its way through the python and the debt ceiling circus has left town.
Touch and go landings by a plane are not pleasant as the plane surges back into the air, but just maybe we should all just try to exhale, enjoy the thrill and wait for hurricane season…………