Beat Or Miss, Buying Stocks On Payrolls Day Has Been A Big Winner For The Last Year
It’s payroll day, and unlike most releases it kind of feels like there is a bimodal distribution to the outcomes today: either the figure is weak enough to stop a taper next month, or it isn’t.
However, if history is any guide, the stock market’s reaction is anything but bimodal.
In fact, beat or miss, for 9 of the last 11 months, S&P 500 futures have rallied in the six hours following the non-farm payrolls report…
No matter whether the jobs print missed by almost 4 sigma or beat by more than 2 sigma, buyers stepped in because either “bad news is good news – Fed will leave floodgates open longer” or “good news is good news as it confirms ‘recovery’ is on target and Fed still promised to remain on hold for years.”
Amazing how that narrative shifts from month to month to satisfy the pitches of various asset-gatherers and commission-rakers.
Nevertheless, on average over the last 12 months, S&P futures have risen 0.368% in the six hours after the report printed…
Too easy right?
Well, it may just be different this time (yeah we said it). While the equity market’s reaction has been almost uniform, the Treasury market has been unsure of how to react, with an ‘on average’ spike in yields immediately after followed by a modest trend lower….
Interestingly, Bloomberg’s Ven Ram raises an important point about the asymmetric reaction function that is possible after today’s payrolls print.
With the Fed having already signaled that it may announce tapering next month, a better-than-forecast print is unlikely to move the needle on Treasury yields by a whole lot. Sure, we will see a knee-jerk reaction and perhaps an incremental follow-through, but it’s hard to see an unqualified vociferous reaction. Even with a taper, the Fed’s balance sheet will still be swelling, albeit at a smaller pace, and unless the discussion shifts to reducing the size of the war chest, bonds have oodles of support from the central bank.
A big downside miss — we are talking of a dispersion of greater than 2 standard deviations — will cause the markets to question the resilience of the economy in the face of soaring commodity prices as well as supply bottlenecks and send yields lower. With a debt-ceiling fiasco having been deferred for now, yields need an excuse to head lower and a shocker of a non-farm payrolls number on the weaker side may provide just that.
All of which circles us back to stonks – given their sensitivity to rates currently, as we said above, perhaps the reaction function this time will be different.