07 Feb JANUARY’S BLS EMPLOYMENT REPORT, A POSSIBLE ROTATION INTO VALUE AND PERHAPS SOME DEJA VU
Will the next several weeks be similar to the last several weeks in September? Bloomberg wrote late yesterday afternoon “market darlings including technology and dividend stocks are suddenly falling out of favor. Laggards such as those that trade at lower prices relative to earnings or book value….aka value…are coming back to life.”
Bloomberg further writes “the speed of rotation is perhaps best captured by Dow Jones measures of quantitative factors…the gauge for momentum portfolio that buys winners and sells losers tumbled 2.2%. A similar index for value rallied 3%.”
The newswire continued to report the performance gap is the biggest since September when momentum stocks suffered their worst rout since 2009 dealing a huge blow to some hedge and “quant” funds.
The cause for September’s massive rotation was a change in the perception of the strength of the economy and a subsequent rise in bond yields.
It is largely suspected that this rotation was a major reason for the repo blowout where overnight yields spiked to almost 10% because of demand for liquidity. As widely noted today the repo market is still suffering from liquidity issues.
Today is the release of January’s BLS labor report. Will the data indicate similar strength as reported in Wednesday’s ADP Private Sector report? If so, will yields surge? Yields sank from around 1.92% to 1.51% from January 1-31, the result of the coronavirus. Currently the 10-year is yielding around 1.64%.
The Federal Reserve stated both Wednesday’s and Thursday’s repo auction was oversubscribed by a factor of two.
Is history repeating itself? As indicated above, value, which is still trading at the lowest level as compared to growth since 2001, has recently outperformed growth by large margin as was the case in September.
If today’s jobless report is as strong as the ADP survey suggests, will yields surge hence increasing the stress in the short-term funding markets?
Analysts are expecting a 162k increase in nonfarm payrolls, 150k gain in private sector payrolls, a 3.5% unemployment rate, a 34.3-hour work week, a 0.3% increase in hourly earnings and a 62.3% labor participation rate.
Last night the foreign markets were down. London was down 0.60%, Paris down 0.27% and Frankfurt down 0.52%. China was up 0.33%, Japan down 0.19% and Hang Sang down 0.33%.
The Dow should open moderately lower on coronavirus fears but this could change radically given the possible significance of the 830 data. The 10-year is up 9/32 to yield 1.62%.