During the weekend we have all been bombarded by headlines such as:
Better Than Expected NFP Drives S&P and DOW To New All-Time-Highs
S&P 500, Dow, and Germany’s DAX Rise to All-Time Highs On NFP Figures
The S&P 500 Smashes Through 1600
The reason behind the strong equity performance has been attributed to the US Nonfarm payroll numbers as per the following headline "The strong increase in the jobs figures provided a boost to the markets":
Total nonfarm payroll employment rose by 165,000 in April, and the unemployment rate was little changed at 7.5 percent, the U.S. Bureau of Labor Statistics reported today. Employment increased in professional and business services, food services and drinking places, retail trade, and healthcare.
The average workweek for all employees on private nonfarm payrolls decreased by 0.2 hour in April to 34.4 hours. Within manufacturing, the workweek decreased by 0.1 hour to 40.7 hours, and overtime declined by 0.1 hour to 3.3 hours. The average workweek for production and non-supervisory employees on private nonfarm payrolls decreased by 0.1 hour to 33.7 hours.
US non-farm payrolls for April saw the biggest rise in three months , beating expectations for 140 thousand and higher than the revised 138 thousand rise in jobs seen in March. The unemployment rate hits the lowest rate since December 2008.
On the bad news side. If we look at the employed figure of 143,724,000 people, a drop of 0.2 hours is a full-time equivalent decrease of 1/2%. Applied to the employed population, this amounts to an imputed economic decrease of 718,620 jobs. That is, the loss of work-week hours of just 0.2 has the same economic impact as firing 700,000 people.
Let's focus on the fact that in the same week we went from "Sell in May and go away" to "S&P500, Dow and German's Dax rise to an all time high", therefore if we were trading according to the headlines our position was already underwater.
We know that headlines are made to attract the public, the same public that bought the market at the top of the dot-com bubble. Where is the truth?
For sure we know that the so called NFP whisper number was 130.000 although expectations were for 140.000, therefore those that were "betting" on the number, thinking they got "IT" ahead had to cover their short positions in equity benchmarks and selling their longs in the bond space, stops hunting did the rest. As simple as that.
In my opinion, Friday's market action gave us important material to think about:
- The selloff in bonds could be quite heavy, although as per Friday's close the trend is still upward sloping
- Shorting the Equity market just because we are in uncharted territory could be quite dangerous
- Intraday price action can easily be driven by the words of someone who think to know where the point of equilibrium is ( The euro move after Nowotny's comments).
- Sometimes the reaction to the news is much more important that the news itself.
Concluding, headlines are not used to trade but to sell articles/newspapers.