Nonfarm Payrolls May 2018

The Bureau of Labor Statistics (BLS) reported a solid 223,000 jobs added in the US for the month of May. However, the main news in this report is the 2.7% year over year increase in hourly wages.   The unemployment rate dipped to 3.8% from 3.9% month over month, while labor force participation also shed 0.1% coming in at 62.7%. Job gains were broad-based with significant hiring activity in retail trade, construction, and health care. The BLS also upped figures from its March and April reports, adding a net 15,000 jobs.

Across the pond, European PMI’s continue to suggest economic expansion albeit at a more modest pace. In our view, this is consistent with a number of economic developments that suggest a slowing/ aging global expansion. A slowing pace of global growth coupled with the resilient economic backdrop in the US presents meaningful implications for our strategic outlook.

Factoring in substantial political and policy risk, TWP is upgrading its view on the US dollar to bullish, while simultaneously downgrading its view on duration to bearish. Importantly, we do not see this as an opportunity to rerate risk altogether, as we maintain a neutral stance on equities and reiterate our S&P 500 fair value estimate of 2740. TWP is cautiously optimistic in a tactical sense, but we will certainly be keeping a close eye on the Fed as the June FOMC meeting approaches. What will the inflation hawks at the Fed do with 2.7% wage growth? We shall see.                 

Market Outlook: Bullish USD, Bearish Duration, Neutral Equities