Nonfarm Payrolls June 2019

Happy Independence Day! In celebrating our nation’s birth, we are bringing you yet another nonfarm payrolls report from the Washington-based Bureau of Labor Statistics. Plenty of proverbial fireworks in this one. 224,000 jobs added in June! Unemployment remains near a 50-year low and more American workers come back into the workforce as the labor force participation rate ticked back up to 62.9%. Meanwhile, our June employment to population ratio is unchanged relative to May and hourly wages increased 0.2% mom. The bulk of June’s hiring activity took place in business and professional services and healthcare, combining to contribute nearly 40% of June’s job gains. Interestingly, May’s weak headline figure was actually revised downward from 75,000 to 72,000 jobs created.

The G-20 meeting in Osaka has come and gone. Trade negotiations between the US and China are back in the works. US companies are again allowed to sell to Huawei and China will buy more agricultural products from the US. China has again stated any deal will be predicated on the removal of all tariffs and President Trump has engaged on the currency front, labeling China- and the EU for that matter- currency manipulators. Less today’s reading on the US labor market, global economic data points look softer and this week’s ISM did little to support the case for a quick second half rebound. The Fed is broadly expected to cut interest rates at its next meeting.      

With the S&P 500 currently trading at roughly fair value (TWP SPX fair value estimate is currently 2975) and bonds having thoroughly priced in a dovish pivot from the Fed (and other central banks), our market outlook remains unchanged. The recent rebound in equities is largely attributable to the prospect of interest rate cuts rather than improving fundamentals. Inflation remains subdued and earnings season is upon us again. From a market standpoint, the S&P 500 is trading slightly above its April high, which is slightly above its September 2018 high. There has been a tremendous amount of noise and volatility across asset classes since last fall, but it is always important to maintain on objective perspective, particularly at this stage of the cycle. 

Market Outlook: Bullish USD, Neutral Duration, Neutral Equities