Instant Reaction: US Adds 172,000 Jobs, Boosting Bets on Fed Rate Hike by Year-End

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1:20Podcasts. Radio. News. This is a breaking news update from Bloomberg. Instant reaction and analysis from our 3 ,000 journalists and analysts around the world. And the May unemployment report hitting the Bloomberg terminal, and it shows a big jump in the number of jobs added to this economy in the month of May. We added 172 ,000 jobs. This is blowing away estimates of 88 ,000, even the whisper number, which was for 99 ,000. And this is compared to the 115 ,000 jobs we added in the prior month. Going through this report, we've got the unemployment rate holding steady at 4.3%. That was expected. As for average hourly earnings, not much movement there at all, up 3.4%, right in line with estimates.

2:08and a bit lower than the month prior when we saw that move up 3.6%. So again, wages not keeping pace with inflation, which is now at 3.8%. And we have got, also want to take a look at the labor force participation rate, again, in line with estimates at 61.8%, so unchanged from the prior month. But again, the headline number here, the economy adding many more jobs than expected, 172 ,000 in the month of May. The estimate was for 88 ,000. and the unemployment rate holding steady at 4.3%. And that's a look at the May jobs report, Tom and Paul. Alexis, thanks so much. Bloomberg surveillance on this jobs day across this nation.

2:48Brought to you by IBKR for the past three years. Interactive brokers, individual clients, averaged 24.3 % annually, beating the standard in poor's 500, lower costs and access to 170 plus global markets. It matters. visit ibkr.com slash performance. So, Paul, I go to the yield space. You got to off this. It's a jump condition, five basis points, four, five, two on the 10-year, 5.01 on a 30-year bond, based on what Priya Misra said, you know, X number of minutes ago, like you're one-third of the way to her tension point for Chairman Walsh. And on the short end, Tom, which kind of reflects where maybe the Fed's thinking about, up six basis points on the two-year Treasury, 4.1 % and futures S &P off 45, Tom.

3:38Claudia, I'm with us here for a few minutes of perspective. Claudia, I get the idea that non-farm payrolls are tough to call, but I got a 93 ,000 plus two-month payroll revision. And what really pauses me is even the underemployment rate came down from 8.2 % to 8.1%. How does a chairman respond to this when he's cutting the curtains for the new office? Right. Well, I mean, you know, it's good news on adding jobs. I think one for the Fed, this isn't such a worrisome print in that wage growth was still pretty moderate. We're still seeing slowing in wage growth. So, you know, the Fed is not anti-jobs.

4:27They're anti-inflation, right? So, you know, if you're not seeing those cost pressures push in, you know, this can be these are still pretty modest numbers in terms of adding payrolls. They're much better than what we saw last year. But so I think this is this looks like solid report. Right. Unemployment stays low. Like you said, underemployment ticks down a bit and wage growth is still slowing. So, you know, in terms of this, you know, being some inflationary pressure, I just don't see it here. Unfair here with two minutes into this to parse it and all, but I got a three-month moving average of nonfarm payrolls, folks, from another time and place, 188 ,000.

5:07Do you assume, Dr. Sam, that this will be revised down in six months or 12 months? No, and I don't think we should. Even though we've seen in the last few years our annual revisions have been pretty substantial, down revisions. There's, you know, research coming out of Cleveland Fed that says, you know, these aren't anomalies. We haven't broken the model in terms of these surveys always being, you know, prone towards down revision. And actually, we've gotten some indication from administrative data that we might actually get an upward revision for last year when that comes in in the spring. So I think we can take these numbers for what they are.

5:45And in particular, if you look past three months, averaging up around 100 ,000, we saw some upward revisions. I mean, this really does look, if nothing else, really puts the exclamation point on a stabilization in the labor market relative to last year. Paul, can I do a shout out to our collective set of guests? Yeah. And that they have been talking for two or three weeks the directional tone of this report. Yeah, the labor market. The consensus is pretty solid there. So, Claudia, you called out wages, 3.4 percent kind of annualized growth. But then I look at next Wednesday, we're going to get a CPI print.

6:19consensus there is for like 4.2 percent growth in CPI. So wages are not keeping up with inflation. What's the thought there? So wages are not keeping up with inflation. That's going to limit the purchasing power. I mean, when I talk about this not having the inflationary risk is often if it might be concerned about kind of second round effects, workers bargaining up their wages to try and cover those prices. And that creates another round of inflation like that. That's not what we're seeing in this data. And what we're really concerned about is, does this inflation have legs of its own? Does it really start to kind of feed on itself?

6:55And that's not the sign here from this data. Of course, the flip side of that is this puts a hardship, puts the screws on workers that are seeing their paychecks be eaten up. And it limits the ability of businesses to pass on some of these costs. So yeah, it limits inflation, but there's kind of pain being fed into the system. It's going to go somewhere. The negative real wage is going to be the heart of the matter. Claudia, we got to go. Sean emails in, says, Claudia, thank you so much for mentioning Granville, Ohio. Sean went to Denison, played lacrosse. Go Big Red. Sean, thank you so much. Go Big Red.

7:29Claudia, thank you so much. Claudia Somm, our definitive market economist across this nation. All of her work at the Fed, at Michigan, at New Century Advisors, and as well in the studio right now with equity perspective on this, summing in the total market, working with Lizanne Saunders, is Kevin Gordon here. What's a chart you put together this morning? I want to get out front of the Kevin Gordon tweet. What's on your mind? Well, for the equity market, what's been on our mind, and this was sort of central to the equity component of our mid-year outlook that we just published, is this divergence that you're seeing in breadth.

8:04The fact that, you know, the average stock, when you look at the percentage of companies above their 200-day moving average, when you look at percentage of companies outperforming the S &P 500 on a rolling three-month basis, that's remained pretty weak because you've gone through another kind of bout of AI hype, especially within the semiconductors. So that in and of itself is not a horrible omen for the market. We've seen it actually resolve itself. Those divergences resolve themselves in a positive way over the past couple of years when they have happened. Yeah, even in the past three days. I mean, when I got the Dow moving up and I see some of the mutual funds giving me better returns than Broadcom.

8:40There's something going on out there, isn't there? And I will say the new norm, the last time that you actually saw a lower percentage of that metric I mentioned, the percentage of companies that are outperforming the index on a rolling three-month basis, the last time you saw a lower percentage, so sub-23%, was 23 and 24. Before that, you have to go back to 1973. So of course, very different market backdrop, 73, the start of a horrible bear market. 23 and 24, more consistent with correction. So it is more of the norm these days, given the concentrated market. Paul, let's just say future is negative 50 right now.

9:12Kevin, we're in a time here where very active equity new issuance in the marketplace. We had this monster mega deal from Goldman, I mean, from Google this week from Alphabet. The market took it in seemingly very well. And then, of course, we've got all these IPOs that are toot up SpaceX on the road as we speak. than maybe some of these AI plays, huge transactions. What does that tell you about this market here? How do you guys think about it? So I think it does underscore, of course, that the sentiment environment is certainly getting frothier. You know, whether you think of it as frothy or not, I think that's always just kind of up for, you know, whatever the person's perspective is.

9:48I will say, you know, I've been traveling the past four weeks almost nonstop all over the country, also in Korea. But, you know, in the U.S., when I've been speaking with our investors, there's actually been a sort of a elevated degree of skittishness or hesitation around just the environment of mega cap IPOs in general. So the attitudinal sentiment is not necessarily matching up with the behavioral sentiment that we've been seeing in terms of really stretched fund flows and how much has been going into tech and how well semis have been doing. So to me, that sort of lays the framework, I think, or the groundwork for maybe a little bit more room for sentiment to get stretched to the upside.

10:26Of course, you know, well, I think the game will change a little bit after we do get a lot of these these companies coming online into public markets. But I haven't yet felt at least that on the attitudinal side, there's been a lot of that hype that has matched what we've been seeing with people, you know, what they've been doing with their actual dollars. And I guess, you know, if you want to take the bullish side here, which is probably the right way to be, earnings have been there. Earnings have supported this market, it seems like. And how do you think about that going forward? I mean, I think, you know, of course, the breadth of earnings is actually if you just want to look at the number of industries that are seeing their earnings grow.

10:58Yes, the breadth is there. Of course, the magnitude in terms of concentration, it is a little bit more skewed towards the large caps and the mega caps. I take the I do take the optimistic side and angle of that, where if you look over the past several decades, the growth in that earnings share for that cohort has grown. So it's not like it's been totally unjustified. But on the flip side, you do have more reliance on a smaller share of companies. So to the extent that they can't keep up with expectations, to the extent there is a disappointing, you know, quarter, a series of quarters where CapEx estimates for some reason have to come down, earnings estimates, you know, get revised, get revised lower.

11:33Of course, you always run the risk. But that's why we make the case for diversification within the equity market, because you've been able to, you know, that's been the best way to play this, especially with even a sector like health care over the past couple of weeks. On the road, and with the new Schwab commitment to wealth advisors and all that, huge announcements from Schwab over the last 10 days on this. On the road, in the trenches. Paul and I, it's cushy. You know, Paul gets in the Gulf Stream, and he goes out to San Francisco, and, you know, he takes the ferry home and sits there with a beverage of his choice.

12:06It's a can of Budweiser. And, you know, I'm in the Bentley going up Madison Avenue complaining about the traffic. You're in the real world. Yeah. How do you respond to people who raise their hand and say, I love all your optimism. We love Lizanne Saunders, but we're scared stiff. How do you respond to them? Well, frankly, you know, we don't get a lot of clients who exhibit a lot of fear, especially if they're working with an advisor and taking an advised approach. I mean, you know, I've always been a believer that is the benefit of working with somebody, taking your own personal emotion out of it.

12:39But seriously, I mean, that is that is actually the biggest split I see, especially when I talk to people who are newer to markets, this kind of newer retail cohort that, you know, just is getting still getting into this, still getting into investing and learning it, not necessarily working with somebody. That's where you see some skittishness around, you know, what do I do with a big drop in the market? What do I do when I see a particular stock or industry go up by 20 or 30 percent in a day? So I haven't been met with as much fear. But as my you know, to my point around some of these larger IPOs and just the sentiment environment, that was where there's been some, I guess, concern over whether this is, you know, too hyped up.

13:17And I think it comes back to my favorite quote ever about markets is from the late, great John Templeton, Sir John Templeton, you know, bull markets being born out of pessimism, growing on skepticism, maturing on optimism, dying on euphoria. I mean, that is, I think, the perfect way to sort of the perfect overlay that you can apply to really any cycle doesn't say anything about earnings, doesn't say anything about valuation. When you're on the road seeing your clients, are they looking to embrace these markets here or, like as Tom said, maybe a little bit skittish? Are they looking to maybe reposition?

13:46Maybe I should own some more bonds. Maybe I should own some gold. Maybe I should maybe a little bit more cash. Yeah, I haven't seen the willingness to embrace markets fade materially. If anything, I think the bigger concern has been more on the economic side. And actually, the dominant question I've been getting in the first question I've been getting at every event is the concerns over AI in the labor market. That has actually been and from from all age groups across the whole spectrum, from Gen Z, you know, to people who have been investing for decades. That has been the dominant question that, of course, nobody knows the answer to.

14:19I tend to have a relatively optimistic view, you know, in the end, you know, the end game of this, not necessarily being tens of million jobs just fading, you know, out of the economy. But that has definitively been the main question. I got to go. 73 to 75, negative 45 percent on the Dow. The percentage of people in this country that have not enjoyed that. Yep. Or Bob Seger at the time. Huge amount. Kevin Gordon, thank you so much. Really, really appreciate it. We take huge advantage of the way all of our guests travel, travel.

15:18Review the disclosures and disclaimers at sebo.com slash US underscore disclaimers.

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16:53The romance of the business, let me tell you. Christina Campmany is out traveling, got to get home. Her children are well-mannered somewhat. But, you know, she's stuck at DFW and can't get home for a six-hour delay. I mean, that's the romance of working for Invesco across this great nation, right? Of course, of course. The travel's brutal. I mean, it's just it just you get one delay in three days of ruined. At least we've moved past our TSA expedition at the beginning of the year with all those lines. I feel like I was very fortunate. My mom missed a flight going back, leaving my house. I don't think she was too happy with me.

17:32Thank you for joining us. Christina, senior portfolio manager at Invesco. Let me ask a Paul Sweeney question off of this. I got a yield shift price down, yield up. Kevin mentioned Sir John Templeton. Are bonds on sale today? You've definitely seen a bit of a reprice across the front end. And I think, I mean, we keep chopping in these ranges, right? In the last month, we thought maybe$4.50 would contain 10s and 5%, and we pushed to$5.20 and$4.70. And then you saw very quickly money get put back to work there. And I think once we've tested those levels, we'll probably repush them. And it does keep changing the narrative, right?

18:13Before we thought it was somewhat balanced if we've had this energy shock and we have an inflation shock, but we're still a little bit concerned about, are there going to be cracks in the labor market? When we're talking about payroll break even, maybe zero to 50K, and you have 170 or 180 plus positive revisions, it's hard to say that there is weakness in the labor market. But where does it feed through, right? You still have a consumer-led economy. And I think we I mean, we're all sick of talking about this K-shape, but it's so true. Like there I feel like there is pain out there in kind of certainly the bottom half.

18:48We get lucky here, folks. When you have Christina Campani in the turret, she can respond. Traders fully price in quarter point Fed rate hike by year end. That changes. That changed. Yeah. Yeah. I mean, again, when we had this flip in post the Middle East shock, we flipped from an easing bias pricing to a hiking bias pricing. And I think it's very hard to go back. I think the market is grappling, whereas other global central banks like we expect the ECB hikes next week. I think it's clear that the BOJ is still going to hike. I think the market is pricing for the Fed to go. We have priced more and we've taken out a little bit of it.

19:29And now we're retesting that again with a five, six, seven basis point sell off in the front end. But I don't know that where anyone has high, high conviction that the Fed is certainly going because it's just still this shift. I think even they want they don't want to make the mistakes that they made with the inflation shock post covid. But they also want to see, like, is it more broad based? Are you going to see wage wage pressures materialize? And we haven't seen that bit yet. What do you think about just the opportunities globally in your credit markets? Where do you see the value these days?

20:02Credit or rates or both? Both. Sure. So I think when we look at credit, credit still remains really tight. So it's hard to get really excited. But you look at it and you say there is clearly and I think you guys spoke about it earlier today. There's clearly money going into credit funds more so than rates. And I think that there's that question out there of spreads are so tight. But like, what's your comfort? with the with there's more government fiscal issues than some of these big hyperscalers and that people are comfortable putting money with. So I think money will continue to go there. So within credit, we probably have a bias for the U.S.

20:37over Europe and shorter, higher quality paper and shorter demand paper within global rates markets. I think there is still value in the front end across curse, even in the U.S. Right. Because we're not so convinced that the Fed really goes on a massive hiking cycle because I think the financial markets don't tell you. But there are other places that are interesting, Australia, Canada. Okay, before we go, I think it's just so important. Is your market functioning normally? I got a SpaceX IPO. Fortunately, I don't have to ask you about that. I mean, she's in the bald bracket. Yes. Christina Kemp.

21:19JP Morgan, Morgan Stanley, and Christina Kempman. But it's a crazy time. When you sit at the desk, is operationally the huge international bond space that you're in charge of, is it working, quote unquote, normally? I think the markets themselves are functioning. There's liquidity. But when you say, like, are things, and I guess it goes to your question about is it logical or is it, like, functioning? Because to say with all of the macroeconomic things that have developed in the last three months and stocks are where they are, you would you it's like a head scratcher of how are we here? It feels like we live in two different worlds and there's a lot of complacency about even what goes on with this Middle East situation.

22:04But we're all sitting here with the expectation was that this would be resolved in three weeks. And here we are three months later. And even from when we speak to commodity experts across the street, it feels like it's been this rolling three weeks out. We're going to have this severe pressure point. Should all of these things matter? Like, should there be flow through to the U.S. consumer? There absolutely should. But we're not seeing it yet. And that could just be the AI CapEx spend. It's just overwhelming it for now. But I think it does have to show up. Can you come back more often than just job stay?

22:39I would love to.

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