Goldman: The Market’s Reaction To The Jobs Report Means Brace For A Stubborn Grind Higher In September

Ahead of Friday’s payrolls report, we asked “What’s Better For Markets 400K Or 50K” and answered by quoting JPMorgan trader Andrew Tyler who said “50K NFP gets the Fed closer to “Mission Accomplished” as they are nearly there with housing markets (lower prices pending). I think a 400k print would have bond yields reprice higher, potentially taking the 10Y yield above 3% which has acted as a resistance point for Equities, recently.”

Goldman’s John Flood agreed, writing that since we now “are firmly in a BAD is GOOD and vice versa tape”, in this context:

• The market “will get hit hard (-200bps) on a print north of 372k (>prior reading) as sooner than expected “fed pivot” convos will quickly be shelved.”

• On the other hand, “a relatively inline print (150k – 300k) mkt wont react to as traders will sit on hands and wait for CPI.”

• Finally, “if jobs are lost and we get a negative print, tape will rally 100+bps as FOMO/COVER chase will (remain) on w/ early 2023 rate cut discussions gaining more momentum.”

Long story short, the two most influential US banks agreed: a payrolls miss would send stocks surging while a big beat would – or should – crater them.

And yet, as John Flood writes in his NFP post-mortem, “Clearly blowout jobs numbers this AM with +528k headline vs +250k expected, AHE Mom 50bps vs 30bps prior/expected and U/E ticking from 3.6% down to 3.5% (the last time the U/E rate was sub 3.5% was 1969).” What was most amusing, was Flood’s admission that “if i knew these numbers beforehand would have guessed NDX -3% and S&P -2% (best case). Knee jerk reaction was indeed sharply lower but market scratched and clawed back all session…”

Indeed it did, with the S&P closing just barely lower while the Dow actually turned green.

Why is this important? Because as Flood continues, “the market’s reaction today tells me to brace for a stubborn grind higher into September absent any true tape bombs.”

Why? Because the previously discussed massive Buybacks + CTA demand (Goldman’s fresh numbers show +$15b S&P over next week as we will note in a follow up post) “provide enough support to keep the tape afloat in the face of the hot print.” Furthermore, as Flood admits, “most institutional investors I speak with still are not eager to pounce on dips as buying opportunities and plan on sitting on hands until CPI next week.”

Which means that “in this tape buyers live higher” and “Poor Sentiment + Light Positioning + Size Non Fundamental demand + Spotty Liquidity remain as very real tailwinds and continue to win tug of war against concerning macro/fundamentals…”