The nonfarm payrolls report was something of a head scratcher. There was a huge upside surprise with 313,000 jobs created.
In a sign of confidence, more than 800,000 people entered the workforce causing the headline unemployment rate to remain at 4.1% while the broader U6 printed at 8.2%. The labor force participation rate reported at 63% and revisions added 54,000 jobs to the last two reports. Somehow though, wages deteriorated, gaining just 0.1% and dropping the year over year number to 2.6%. Remember that last month the yoy number broke out to 2.9% triggering new inflation concerns. Will this report be revised away or are things really that strong?
The bond market reaction to the jobs data was interesting. The wage data on its face is not inflationary but the incremental step to “full”employment is inflationary. The Ten Year US Treasury Note (NYSEARCA:IEF) yield moved up on Friday just a couple of basis points to 2.89%. The Two Year drifted up to 2.26%. It is interesting because a move in either direction would have been justified by the data.
We now know a little more about the steel and aluminum tariffs. While actual trade wars can’t be good for anyone, the detail we have now implies that this all may be a negotiating ploy. Canada and Mexico have a very visible path to being exempt and other countries can negotiate out of them. Last week we said that Trump supporters would say this is the Art of the Deal at work. That hope is alive and well.
Another surprising development on the political front is the brokering of a meeting between the US and North Korea by South Korea. There are plans for a meeting in May with denuclearization on the table and in the meantime, there will be no further missile testing. When news first broke that NK was interesting in talking with SK, the President quipped we’ll seeand for now that is probably an appropriate stance to take.
Against that multifaceted backdrop, equities had a very strong week. The Dow Jones Industrial Average gained 3.24%, the S&P 500(NYSEARCA:SPY) was up 3.52%, the NASDAQ and Russell 2000 each jumped the same 4.15%. The CBOE Volatility Index (VIX(NYSEARCA:VXX)) fell significantly last week to close Friday with a 14 handle. We’re not sure if that means the market is headed back to 2017 stasis or if the volatility of volatility has now increased and that was a low swing.
A quick check on creative destruction, Toys R Us is closing all of its stores and while we thought this happened a long time ago, this industry was particularly hard hit by the internet and it never quite figured out how to adapt. In the company’s early days as a publicly traded stock, it was a white hot performer which serves as a reminder that any company can fail if it doesn’t stay ahead of the trends of its industry.
Janus Henderson announced it is closing two of its hedged equity funds due to low asset levels. It is kind of interesting in a contrarian sort of way to see a fund company throwing in the towel on a hedged product after so many years where hedging really hasn’t been needed. We fully understand business decisions but a lack of interest in products designed to provide protection could make for unpleasant foreshadowing.
The Washington Post weighs in the the 20th anniversary of The Big Lebowski:
Though the movie was not a huge box-office success, it has since spawned a pseudo-religion, Dudeism, with more than 450,000 “ordained priests;” annual festivals around the country where thousands of costume-clad fans gather to celebrate the film and all its obscure moments; books and academic treatments; White Russian competitions, and legions of fans so fervent that they inspired a film of their own, the documentary, “The Achievers.”
Kevin Love’s situation is complicated:
On November 5th, right after halftime against the Hawks, I had a panic attack. It came out of nowhere. I’d never had one before. I didn’t even know if they were real. But it was real — as real as a broken hand or a sprained ankle. Since that day, almost everything about the way I think about my mental health has changed.
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