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Payrolls Report Raises the Stake for the Next FOMC Meeting

Payrolls Report Raises the Stake for the Next FOMC Meeting

Posted July 5, 2024 at 11:15 am
Steve Sosnick
Interactive Brokers

In the time since we closed early on Wednesday, we’ve had pieces of news that had the potential to move markets.  So far they’ve had a significant impact on bond yields, but neither the FOMC minutes nor the June Payrolls report was sufficient to keep stocks from continuing along their usual path. 

The headline number gave the illusion of a stronger-than-expected jobs market, but that was belied by revisions and unemployment.  A gain of 206,000 Nonfarm Payrolls was above the 190K consensus, but May’s result was revised sharply lower, from 272K to 218K.  Meanwhile, the Unemployment Rate rose to 4.1%, when an unchanged 4.0% was expected.  Combined, that adds up to a more tepid demand for labor than expected.  With Monthly Average Hourly Earnings rising by an as-expected 0.3%, down from 0.4% in May, there is little if anything here to dissuade the FOMC from considering rate cuts. 

That said, while 2-Year Treasury yields sank by 9 basis points and 10-year yields sank by 7 bp, stocks had a relatively muted response.  Sure, by midday the S&P 500 (SPX) was up by its now usual 0.35% or so, but that more likely attributable to favorable momentum from the usual megacap tech stocks than any real enthusiasm about the economic reports.  Six of the Magnificent Seven stocks are higher, with the lone laggard being a relatively unchanged Nvidia (NVDA), pushing the Nasdaq 100 (NDX) to a 0.85% gain.  An NDX that far outpaces SPX is a “tell” that the megacaps are in control – especially on a day when declining stocks yet again outpace advancers.

It is also useful to note that rate cut expectations are little changed from Wednesday, though they do increasingly favor move in September.  Futures are implying a 6.5% chance for a cut at the July 31st meeting, down slightly from Wednesday’s 8.5% and 12% from a week ago.  More importantly, the likelihood of a September cut is now 82%, up from the prior 78.5% and 68% from a week ago. 

The rising likelihood of a September cut is why I believe that July’s meeting is increasingly consequential.  There is growing evidence that the pace of economic growth is slowing.  Just as disinflation tells us that prices are rising, just more slowly, we saw a similar effect today in the jobs market.  We also see this reflected in GDP estimates.  As of Wednesday’s update, the Atlanta Fed’s GDPNow estimate is for a second quarter increase of 1.5%.  Indeed, that reflects a growing economy, but at a slower pace, as the graph below shows:

Source: Atlanta Fed

The key question will be the degree to which the FOMC recognizes the risks of slower growth, and whether they believe that the balance of risks has shifted meaningfully from higher prices to a weakening economy.  If so, then a modest cut would be welcome.  If not, the failure to act could cause investors to believe that the Fed is behind the curve.  This would be less about equity investors slavish addiction to the prospect of monetary accommodation than fear that an inordinately tight policy could unduly restrict future growth.

For now, there is nothing to meaningfully restrict the path of the stocks that matter, so up we go again.  “Don’t short a dull tape” remains in play.  Sure, the next FOMC meeting comes around the height of the upcoming earnings season, but for now that seems to be a distant concern.  The low level of VIX bears that out to some extent.  As long as there is nothing to dissuade the “Super Friends”, the Mag 7 and other big cap tech names from rallying, (certainly they haven’t cared about European elections, let alone our own drama) they likely will.  At least for the short term.  And until they don’t.

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5 thoughts on “Payrolls Report Raises the Stake for the Next FOMC Meeting”

  • J

    I can’t see how anyone can justify between now and September a rate cut if data continues as it has. If there is a cut, it has to be classified as a political gift to Biden, which I’m sure he’s in the process of asking for, if he continues to run which I assume he will. If he chooses not to run, he will regret it for the rest of his life, as Nixon did when he decided not to fight the charges of which he never would have been convicted..

    • Frank

      Biden Biden it is Biden fault, as always…. How about your criminal candidate!!! Propaganda is your soul?


    To me it’s difficult for anyone to try and justify a rate cut between now and September unless the data should significantly change. Inflation is still here; those who buy into 3.3% inflation not kidding themselves. Just look at oil getting close to 90 everyday into the driving season. If there be a great cut it must be considered a Powell gift to buy it which I’m sure Biden is asking for if he decides to run, which I’m sure he will. If Biden decides not to run, he will regret it for the rest of his life, just as Nixon did when he decided not to fight the chargers which he never would have been convicted of. Those who think opposite we’re out of touch with what was actually going on at that time.


    From what I read and see, a rate cut is not justified between now and September unless Powell wants to give Biden a gift, which Biden will definitely ask for if he continues to run. If Biden decides not to run, he will regret it the rest of his life, as Nixon did when he decided not to fight the charges against him. There was no way that he was going to get convicted in Congress. If you don’t believe that, you’re not connected with what was going on at the time in DC.

  • Ian

    “A gain of 206,000 Nonfarm Payrolls was above the 190K consensus, but May’s result was revised sharply lower, from 272K to 218K. ”

    So another way of saying this is:
    May was revised 54K lower. The original reported number was 24% too high.
    June Nonfarm dropped from 218K to 206K, a reported drop of 12K or 5.5%

    If June is revised -24% as May needed to be we will have the revised June drop by 40K to 157K (157=206 – 49K).

    It used to be that if the increase was less than (220K) we had a contraction. Not sure of the new number, but I know the economy has been battered with the Dra- concian measures implemented.

    My groceries are up almost 30%. I know many who can’t pay for both rent and food on their wages.

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