The biggest market moving event of the week was the release of the Nonfarm Payrolls data on Friday June 3, 2016. The Nonfarm Payroll data measures the month over month change in the number of jobs, and the unemployment rate.
The Nonfarm Payroll number came in at 38,000, which was much lower than the market consensus. The previous month was also revised lower from 160,000 to 123,000. The Nonfarm Payroll data is closely monitored by not only market participants, and economists, but by the Federal Open Market Committee (FOMC). The weakness in this data, and the prior month revision, make a June FOMC rate hike very unlikely.
On May 27th (just last Friday), Janet Yellen spoke, and basically said that the Federal Reserve could raise interest rates in the coming months. Her speech caused short term interest rates to spike in anticipation of the coming rate hike. After today’s Nonfarm Payroll number, Janet Yellen has to be very concerned: Either she will be hiking rates into a slowing economy, or she may soon have to talk down her rate hike expectations.
I have to admit; I’m excited to watch this play out. Given that the FOMC makes decisions based on economic data and projections, and their optimistic projections continue to be dashed by poor economic data, it seems like just a matter of time before market participants question whether the Central Bankers, who are in charge of the economic world should continue to be trusted.
To me, it feels like market participants are watching a movie in which they are happy to suspend their disbelief. My only question: How long is this movie going to last?
On the week, the S&P was up 0.00% (flat), the DJIA was down 0.37% and the Nasdaq was up 0.18%.