Date: February 7, 2022

Stronger Jobs Report – Will Stocks Join Party?

Let’s start with Friday’s employment report where 467,000 new jobs were created versus the 200,000 forecast. Unemployment ticked up .1% to 4%. My initial thought was WOW! Finally, a beat and not bad in absolute terms. I didn’t really care about the uptick in the rate. Maybe the job market was correcting and the structural issues were going away. That would be such welcomed news.

I didn’t give it much more thought until I read a piece over the weekend that this was the first report with the new seasonal adjustment based on the annual benchmarking from the Bureau of Labor Statistics. In other words, the government has a new masseuse for the data. If you didn’t know, the employment report isn’t raw data. It is always massaged and manipulated to account for seasonal factors. And then in subsequent months, they revise the data.

The stock market has rebounded smartly from that wild ride on January 24th. So far, it has done nothing wrong except for that the bounce has been on light volume. However, some of the indices have rallied into logical areas where the bears should make a stand. As such, we saw the decline last Thursday. If the stock market is super weak which I do not think is the case yet, the rally is over and it is heading back down to new lows this month. If stocks are neutral to mildly weak, it should move around but not make much progress in either direction. If the market is much stronger than I think then we should see last week’s highest levels exceeded very soon.

Sectors that look appealing for a trade include semis and biotech. That’s not exactly a large list although we do own a few more like energy. High yield bonds are the most concerning area because they have unraveled this year and they’re a vital canary in the coal mine.

On Friday we added to our energy position in DIG and bought some NASDAQ 100 and Russell 2000. We also covered our shorts in the same two indices. On Thursday we covered our S&P 500 short position and bought FREL.


Paul Schatz, President, Heritage Capital