Wall Street’s Ignoring the September Jobs Report

The September jobs report arrived this morning and stocks traded flat in response. Payrolls only totaled 194,000 last month, falling well short of the 500,000 job estimate. In fact, it was bad enough that some Wall Street firms began to consider adjusting their taper timelines.

“This jobs number could call into question the starting point for taper late this year,” said Jamie Cox, Managing Partner for Harris Financial Group, shortly after the jobs report was revealed.

“There are lots of positives in the report, like an uptick in average hourly earnings, but not enough to sugarcoat the fact the employment picture remains murky with all the Covid related cross currents.”

Unemployment fell from 5.1% to 4.8% despite the massive jobs “miss.” Labor participation, on the other hand, dropped from 61.7% to 61.6%. That means the US labor force shrunk by about 183,000 people last month despite the expiration of unemployment benefits.

Analysts were expecting a major jobs “beat” for this reason. Instead, the labor crisis continued through September. We may see a hiring blitz reflected in the October jobs data as Americans start to run out of cash, but after this morning’s jobs report surprise, it’s anyone’s guess as to what the reported payroll gain will actually be.

The silver lining came by way of an increase in hourly wages. Month-over-month, wages grew by 0.6%, up from +0.4% in August. They’re now up 4.6% year-over-year, matching the consensus estimate. Analysts were concerned that wage growth would stagnate as millions of Americans entered the workforce last month.

Obviously, that didn’t happen.

And so, the market wasn’t quite sure what to make of the September jobs data. Is the bad jobs report truly bad news for stocks? Or does it mean the bull run will be extended?

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The majority of analysts stuck to their guns, insisting that the jobs slump won’t change the Fed’s schedule.

“The result, in aggregate, is likely not enough to knock the Fed off its path to begin the tapering process of its balance sheet later this year,” said Glenmede CIO Jason Pride.

“The Fed has already outwardly stated that they believe the employment test for tapering has largely already been met, and today’s report may not meaningfully change that.”

BMO’s Ian Lyngen felt the same:

“This should be more than sufficient to keep tapering on schedule for the November announcement and we’ll look to the incoming Fedspeak to reinforce this notion,” Lyngen wrote.

“The decline of labor participation rate suggests that as unemployment benefits expired, some workers fell out of the labor participation category […] Overall, a mixed report that does little to shift the macro narrative.”

In other words, bulls have the “green light” to continue buying despite the September jobs report’s troubling headline figure. And that’s probably good advice at this point.

The casino won’t close until the taper starts. With Wall Street ready and willing to sidestep the big jobs “miss,” traders are likely to follow suit.

That doesn’t mean stocks will surge through the close today, though. They most likely won’t.

But once the shock wears off, expect the rally to resume. Potentially as early as this coming Monday and maybe even to new market highs by mid-October.

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