Sometimes, things are not what they seem…
Friday morning got off to a rocky start, when the Nonfarm Payrolls Report — literally the data release all us financial wonks were waiting to see this week — came out…
And the numbers were terrible…
Source: Bloomberg
Only 235,000 jobs were added versus 733,000 expected… yikes.
If you’re a working economist and a data point misses your forecast by 67%, it’s time to go back to the drawing board and rebuild your model from scratch.
That said, headline numbers can often be misleading. So it’s always worth our time to check under the hood before trading a terrible jobs report.
Some numbers that stood out to me were the consistent additions in professional and business services, up another 74,000 jobs after posting 79,000 last month.
Similarly, transportation jobs continue to get better, with 53,000 jobs added versus 55,000 last month.
I should also add that an increase in transportation jobs is necessary if we want to see trucking rates come down. In fact, that declining trend is borne out in the data, as trucking rates have declined for a couple of months.
Source: Bloomberg
Perhaps more importantly, though, the market took the terrible jobs report as an indication that the Federal Reserve would continue to be dovish on monetary policy — which tends to pump up markets.
The S&P 500 and the Nasdaq 100 both agreed…
Source: Bloomberg
But the small-cap-heavy Russell 2000 did not…
Source: Bloomberg
This is a dynamic we need to watch, as small caps are now positive on a three-month-return basis, regaining the top momentum spot over the past month.
Source: Fortune Research
Trading the Terrible Jobs Report This Week
If that trend holds, we could see a genuine melt-up over the next quarter, where most of our Fortune Research recommendations — as well as this week’s energy play — are going to fare extremely well.
Speaking of our energy play, the United States Gasoline Fund (NYSEArca: UGA) took a pause Friday morning, finishing essentially flat on the day.
Source: Bloomberg
The effects of Hurricane Ida are still being felt across the country, but residents of Louisiana and the Gulf Coast refiners are feeling it most, with power still out indefinitely across the region.
That means the next two EIA storage reports — which come out on Wednesdays — are likely going to show huge gasoline draws, which should be bullish for prices.
As such, we plan to hold through at least next week while we wait on these dynamics to play out.
Next week also brings JOLTS Job Openings data, weekly jobless claims and a read on inflation rates via the Producer Price Index (PPI) update.
But in the meantime, I hope you all enjoy the long Labor Day weekend!
Catch you all next week…
All the best,
Matt Warder
Fortune Research
