Stocks tumbled at the open this morning in response to a way better-than-expected July jobs report released before the market opened. The Bureau of Labor Statistics (BLS) reported that the US economy added a whopping 528,000 jobs last month, easily beating the 250,000 job consensus estimate.
The last time we saw a payrolls gain this strong was back in February (+714,000). The BLS also revised last month’s total to 398,000 jobs, up from 372,000.
“This is hot. For the Fed, this is another 75 basis point hike,” said Diane Swonk, KPMG’s chief economist.
“The Fed is dealing with strong demand in a supply-constrained economy, and that demand extends to labor.”
B. Riley Financial’s Art Hogan offered a similar take.
“Anybody that jumped on the ‘Fed is going to pivot next year and start cutting rates’ is going to have to get off at the next station because that’s not in the cards,” Hogan explained.
“It is clearly a situation where the economy is not screeching or heading into a recession here and now.”
Unemployment dropped, too, falling from 3.6% to 3.5% in July as the labor participation rate also declined slightly. Labor participation has been steadily falling since March.
Hourly wages were also up, rising 5.2% year-over-year vs. 4.9% expected. Bulls worried about “hot” inflation impulses were concerned by the higher-than-anticipated wage growth.
And though the headline jobs gain was huge (as reported by the establishment survey), the household survey told a different story. US workers climbed just +179,000 in July, growing the discrepancy between the household and establishment surveys to 1.8 million. The difference between the two surveys was 1.5 million in June.
Best of all, July’s massive jobs beat was driven by an even bigger seasonal adjustment. The BLS added roughly 900,000 jobs via adjustment for July. That means, unadjusted, the US economy lost around 385,000 jobs last month.
So, should bulls really be that concerned about the July jobs gain? Probably not. In fact, you could argue that traders should ignore the jobs reports completely given the size of the adjustments. Don’t forget that in January of this year, the BLS revised lower the March-July 2021 jobs reports by about 1 million jobs collectively. That means investors were essentially “flying blind” for much of the year. So too was the Fed.
Regardless, investors seemed to shake off today’s report as evidenced by the afternoon intraday recovery. Cisco Systems (NASDAQ: CSCO), however, still finished considerably lower on the day. The stock failed to rally past resistance (blue line) from the June highs and instead closed below its minor bullish trend (yellow trendline).
CSCO also closed below the 10-day moving average. The stochastic indicator suggests that the stock has plenty of room to fall as well. For those reasons, it might make sense to take CSCO short with a trade trigger of $44.09, below today’s low, as the general market digests the most recent jobs data.
