Muted Reaction From Employment Report – Value & Small Caps Quietly Leading

The monthly jobs report hit this morning and the economy created 199,000 new jobs, 9,000 more than expected. The unemployment rate dropped to 3.7% from 3.9% which is a surprise. I am struck by how muted market response has become to what was once considered the most important economic release of the month. Bond yields climbed and pre-market trading show some mild weakness for stocks, but neither was out of the ordinary for a normal day, let alone with this type of report.

Here are bond yields over the past year. Recall that the three musketeers of oil, bonds and the dollar were huge headwinds for stocks last year. It is no coincidence that stocks bottomed in October right around the same time that bond yields peaked and then collapsed. When bond yields bounce, expect stocks to struggle for a bit.

What’s interesting now and among my top watches is how much value has outperformed growth over the past 6 weeks or so. I am keenly looking for a return to leadership by growth and rebalancing some of our value holdings to growth. It would be even more interesting if this did not happen the rest of the month. It is also worth noting that small caps have led the rally and the seasonals support more upside for indices like the Russell 2000 into 2024. Fun stuff as I watch so many scramble to chase their tails with year-end almost here and defensive portfolios performing so poorly that pink slips will be a theme in 2024.

The little guy and I are looking forward to what is shaping up to be a beautiful ski day on Saturday at the expense of going to the UCONN men’s game at Storrs. With a deluge of rain and massive winds coming to New England on Sunday and Monday, we need to take advantage of the few good early season ski days.

On Wednesday we sold some FNCL. On Thursday we bought FREL, FDEV, EIFAX, more XRT and more JHYFX. We sold VGK, levered S&P 500 and some levered inverse Russell 2000.