Another day, another rally. In yesterday’s piece, we anticipated a positive spin on today’s payrolls report as long as the number was with reason, writing “In light of the recent market melt-up, is there much doubt that unless the report is a true outlier like a negative number or over a million, that traders will interpret the result in a bullish light, no matter what?” With an addition of 531,000 non-farm payrolls when 450,000 were expected, the number was sufficient to continue the uptrends that appear firmly in place.
I’m not going to give myself much credit for such an obvious call. Besides, there was a major piece of positive news that was already working its way through the market psyche. A new pill from Pfizer (PFE) that appears to sharply reduce the likelihood of Covid-related hospitalizations is one more possible signal that we can put the virus behind us. This is on top of similar news from Merck (MRK) that was released on October 11th. It is probably not a coincidence that the S&P 500 (SPX) bottomed 2 days later and began an almost interrupted move higher since then. That may also be why the move today, while substantial (SPX and NDX ~+0.75%, Russell 2000 (RTY) +1.75%), is not even larger.
Today’s payrolls report was not exactly a Goldilocks number. That would imply “not too hot, not too cold”. There was nothing cold about today’s statistics. Besides a headline beat of 81,000, we saw a positive revision to last month’s number of another 118,000. All of a sudden, last month’s miss doesn’t seem so bad, and we ended up with a total beat of 199,000 today. Let’s call it 200k for simplicity’s sake. The unemployment rate fell to 4.6% vs, last month’s 4.8% and an expected 4.7%. Average hourly earnings rose 0.4%, as expected. Taken in combination, this is a very solid improvement in the labor picture, but not enough to spur the Federal Reserve into more immediate action. Anything that keeps Papa Bear away from Goldilocks is a market-friendly number.
Looking ahead to next week, the major releases are the Producer and Consumer Price Indices (PPI, CPI) on Tuesday and Thursday respectively. Market expectations are so high that once again it would take truly astounding numbers to shake the market’s good mood. The market expects rises of 0.6% and 0.5% for the respective headline numbers and rises of 0.5% and 0.4% for the cores. With the word “transitory” still in the picture, anything other than substantial rises in the ex-food and energy numbers (for those of us who neither eat nor drive?) could be taken in stride by investors. Higher commodity prices can certainly be rationalized as transitory, and traders in a bullish mindset can rationalize all sorts of inconvenient facts if they arise.
All in all, today is a happy day for most investors. Even as the days get shorter in the Northern Hemisphere, many people see only sunshine for now.
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