May 6, 2022
Jobs: The US economy added +428,000 jobs in April, which was higher than consensus expectation for 380,000. Non-farm payrolls are now only down 1.2M or 0.8% from February 2020 levels. An unchanged Unemployment Rate of 3.6% and lower wage growth (+0.3% MoM vs. consensus for +0.4%) provides some relief for inflation concerns, while a big decline in the participation rate (62.2% from 62.4% in March) provides a decent inflationary offset.
SPX: Yesterday’s sell-off in the S&P 500 (SPX) was driven by sharply higher bond yields, which was primarily driven by technical factors, rather than a sudden, more hawkish assessment of Wednesday’s Fed meeting. Normally, a hawkish Fed assessment results in curve flattening, but the curve was sharply steeper yesterday with 30-year yields up +17bps at one point. The root causes of the volatility looks like thin Treasury liquidity ahead of June’s start to balance sheet run-off as 10-year Treasury market depth sits near levels from March 2020. Equity sentiment and positioning indicators sit at bearish extremes as the SPX finds support near the ~4,100 level. The odds highly favor a sharp recovery from current levels.