The June jobs report crushed expectations.
On Friday, the Labor Department announced 224,000 new jobs were added to the U.S. economy, versus the market's expectation of 165,000. After months of slowing job growth, the jump came as a surprise to many. The unemployment rate increased slightly to 3.7% from 3.6% in May.
The outsized payroll growth confused the market, which is anticipating an interest rate cut by the Federal Reserve later this month. Stocks fell in response to the move, while investor expectations of a 25-basis-point cut in July rose to 91% from just above 70%.
With the Fed closely watching these numbers, there is a lot of uncertainty for what this job report could mean for investors. Here's what five experts think comes next:
Kenny Polcari, managing principal at Butcher Joseph Asset Management, said the market will likely slow down, but better days are ahead, especially if a trade deal comes soon:
"You can't ever fight the Fed. And if we're still having that conversation about this pending rate cut coming at the end of July then I would suspect you might see the market back off a little bit today just because you had such a strong number, so maybe there's a question about, are they going to do it? Is it going to be 50 [basis points]? Is it going to be 25? What did the market expect versus what they think they're going to get now? And so, therefore, you may see some churn. But, in the end, I think that it's going to find plenty of support. Look, the other economic data is not as weak as everyone's making it out to be. I think the economy feels like it's chugging along just fine and so therefore I do think that there are better days ahead. But in the short term, there's a fair amount of noise, a lot of it around the report today, a lot of it around, certainly, trade, which will be on going. But, look, if we get a trade deal in the next 25 days before the Fed meeting, you could see, in my opinion, the whole Fed cut rate thing come right off the table, because strong economic jobs number, you got a trade deal that really looks like it's going to work — the Fed may take a second and say, 'You know what? Let's sit back for a minute and see how this plays out.' So, I don't think it's over yet."
Fidelity Investments Director of Global Macro Jurrien Timmer said the jobs report is only a piece of the bigger picture, and other data suggest that the U.S. economy is slowing down:
"It was a good number. It was a Goldilocks number, but, certainly, there's plenty of other information out there that suggests that the U.S. has joined the rest of the world in kind of a synchronized global economic slowdown, and that a couple of insurance cuts here over the summer or into the fall makes sense. You know, probably not a 50[-basis-point cut] in July. … That really didn't make a lot of sense in my mind anyway. But I think the Fed is still poised to cut and whether they actually cut or not, we don't know. But my guess is that they will, and in a slowing growth environment, the payroll number notwithstanding, I think that kind of insurance cut with inflation running so much below its target makes sense here. And they can always take those cuts back next year if the economy re-accelerates."
Margaret Patel, senior portfolio manager at Wells Fargo Asset Management, said that if the Fed continues to be passive, it will help the economy grow:
"We are seeing some slowdown, which reflected their tightening and appropriate tightening last year, not only [in] housing, but also the inverted yield curve and other signs of corporate slowdown. So, I think if the Fed continues with being passive – the proper course – and cuts rates, I think that will give more confidence to business. And I really think that the cycles we've had have all been caused by the Fed. If the Fed steps back to a passive mode, there's no reason why we can't have secular growth for a number of years into the future. There's nothing inevitable about a recession unless the Fed over-tightens."
Gordon Charlop, managing director and partner at Rosenblatt Securities, said data coming in the next two weeks will give the market more clarity:
"I think that the investment community believes that the rate cut's a foregone conclusion. It's priced in. So, perhaps the fact that the jobs report came out the way it did, people are suggesting that, possibly, it might not happen, so they're maybe trying to walk back their expectations a little bit. But it hasn't been a tumultuous freefall. It's a Friday after a holiday, volume's down about 20%. We're just sort of listless[ly] trading here, but I don't get any sense of this thing sort of gaining any momentum to the downside, just kind of lackluster trading here. A couple of things, though, that you have to look forward to in the weeks ahead: obviously, earnings are coming, and the question will be what is the impact of tariffs and trade on those earnings, and how will they spin it if the earnings come up short? So, it'll be very interesting next week or two to see how that plays out."
Burns McKinney, portfolio manager at Allianz Global Investors, said that, considering all the facts, a rate cut may not be necessary until later this year:
"I think it's very clear the way equities are trading, and it, to some degree, reaffirms the movement that we've had in recent weeks: … very binary, very risk-on, risk-off based on interest rate policy and trade policy. And when you consider the fact [that] we had a very strong jobs report, unemployment's near the lowest it's been in 15 years, stocks are at all-time highs or near all-time highs, it suggests that maybe we shouldn't expect [a rate cut] in July. That said, we believe that one to two rate cuts at some point this year, perhaps in September and December, are still likely based on the Fed's desire to reverse any inversion in the yield curve and the fact that you have imbalances with respect to low rates elsewhere. And what really matters for equity investors is not necessarily what the Fed does, but what they do relative to what is desired or expected by the markets. … You know, if a kid goes to the fair and they think they're going to get three scoops of ice cream and they only get two scoops of ice cream, there's probably going to be a little bit of a tantrum. And, based on that, we suggest that stocks aren't terribly cheap. It could be a little bit more volatile at some point later this year. And so one of the things that we're suggesting to our clients is maybe take a little bit of a barbell approach whereby [you] get a little bit of your offense not through necessarily growthier areas, but through disruptors, things like mobile payments or cloud computing, and try to find cheaper ways to play defense – maybe not in the bond proxies, but maybe in the defense sector or perhaps health care."