Santoli’s Friday market notes: Poor jobs report did not take the markets by surprise

Published Fri, Sep 3 20211:12 PM EDT

This is the daily notebook of Mike Santoli, CNBC's senior markets commentator, with ideas about trends, stocks and market statistics. -The jarring shortfall in August payrolls relative to forecasts did not take the markets by surprise. For much of the summer, equities and bonds have been acting as if a lull in economic growth and a hitch in reopening momentum was underway. -Thus the dominance since early July of growth stocks over cyclical and the lid that has been kept on Treasury yields. Beyond that, areas levered to the consumer and economic velocity have gone sideways since the spring… -While defensive stocks have been preferred to leveraged/volatile ones… -And safer corporate debt has made back some of the ground it lost early in the year to riskier junk bonds… -This leaves the market still in the "wait" part of the "wait and see" process in determining the trajectory of growth and implications for the Federal Reserve. At this point, one month's noisy jobs number (revisions to prior months +130k jobs, public sector/seasonal adjustments a key swing factor, Covid-related leisure industries a big source of drag) doesn't signify a lasting step-down in the pace of economic recovery, yet. -The Fed was on track to begin cutting back on $120B/month in bond purchases by the end of the year and remains so, most likely, even if today's number makes a September start even less likely than it already was. Jerome Powell last week did a good job separating tapering from an eventual rate hike in investors' minds, and what is holding back job creation is not influenced by $120B/month of asset purchases, so this is likely a go unless the data go south fast and/or market's get very stressed and colicky between now and November. -This is all being processed by the broad market into a continued low-momentum, low-drama grind higher. It's slowed down, and leadership has been narrower over the summer than many would like, but because of those things the index itself hasn't become particularly overheated along the way. Same angle of ascent for months, no real excitable acceleration. -Definitely a risk that the Nasdaq 100-type stocks – which have become moderately stretched technically – could falter a bit without cyclicals being ready to grab the baton given the economic soft patch and lack of much lift in bond yields. Educated conjecture, but need to watch whether the rotational magic remains in effect. -The September data will matter quite a bit in figuring out if August was a stutter-step or a stumble in the recovery. Comes along with plenty of policy flux: Congress needs to deal with budget, infrastructure, debt ceiling, etc. I can see why folks want to play this by betting on a spurt of equity volatility, but it's a tough game to master. -This "watch out for some turbulence" instinct has the VIX holding more a of a bid than otherwise on a flattish index day ahead of a three-day weekend, but still pretty neutral in the 16s. -Market breadth today pretty weak, a give-back of some strong readings all week. Small caps lagging. Credit trades fine. U.S. dollar soft.

Traders work at the trading floor in the New York Stock Exchange in New York, the United States, Aug. 19, 2021.

Wang Ying | Xinhua News Agency | Getty Images

This is the daily notebook of Mike Santoli, CNBC's senior markets commentator, with ideas about trends, stocks and market statistics.