Morning Notes — Jobs

Today’s ADP private payroll numbers was softer than expected at +330,000.  The report has a relatively weak positive correlation to official BLS data (due Friday), but today’s miss delays tapering expectations at the margin.  From an equity perspective, the weaker number partially de-risks Friday’s release of July non-farm payrolls, hold back bond yields and encourages increased exposure in growth/Tech sectors where there have been some disappointments this earnings season. Risks into Friday’s Jobs Report still seem asymmetric with a greater negative reaction likely from a miss, given how inflation expectations have moderated since mid-May. The reason for a miss would be important as today’s ADP report cited ongoing labor market bottlenecks.

Bond yields: The updated dot plot from the June FOMC pulled rate hike expectations forward with market participants pricing a potential Fed policy mistake. Ten-year nominal yields have pulled back to key technical pattern support and 50% retracement near 1.15% (January levels). Ten-year real yields are now below levels from last summer, helping high multiple stocks sustain forward valuations.  The real risk for growth/Tech multiples comes from higher real yields, which would happen if the Fed’s successful in sustaining inflation near 2%.