Is Good News Good Again? Not Yet.

Earlier this morning, traders anxiously awaited the monthly employment report from the Bureau of Labor Statistics. This has become the most anticipated economic release each month (referred to be financial media as the “key employment numbers”). If the Fed is watching these numbers carefully, so must investors.

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The Federal Reserve historically had a dual mandate to “foster economic conditions that achieve both stable prices and maximum sustainable employment”.While they somewhat modified that statement in August, Chairman Powell has continually reaffirmed — as recently as yesterday – that the Fed is unlikely to tighten monetary policy until the labor market attains full employment. Today’s release showed an unexpected improvement in the labor economy, but we remain a long way from full employment. Economists expected an increase of 200,000 nonfarm payrolls but saw a gain of 379,000 instead. Combined with an upward revision to last month’s numbers, that meant that nearly 300,000 extra jobs were created. However, the unemployment rate beat estimates only slightly, coming in at 6.2% vs. an expected 6.3%, monthly hourly earnings rose an expected 0.2%, and the labor force participation rate met expectations at a relatively weak 61.4%.

If the market were in a better psychological state, this would be considered a “Goldilocks” result – not too hot and not too cold. It’s a labor market that is improving but not far and fast enough to cause the Fed to veer away from an accommodative stance. Shortly after the numbers were released, that appeared to be the market’s interpretation.S&P 500 Index Mini Futures (ES) rallied sharply after some brief indecision and were up over 1% when the equity markets opened. They were even able to shrug off a rise in 10-year Treasury note yields. They yielded over 1.6% in the immediate aftermath of the number and as the equity indices opened at their highs.

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