Ok, so good news on the econ front. The January jobs report was a beat and on top of that, average hourly earnings are growing at their fastest y/y pace since 2009. "Bigly jobs!" "Tremendous wages!"
Unfortunately for the stock market, this news comes amid an egregious bond selloff that saw 10Y Treasurys post some of their worst risk-adjusted returns ever in January.
Without boring you with the details, at issue here is the rapidity of the rise in yields. Past a certain point, market participants stop looking at rising long rates as a barometer of the robustness of the recovery (and thereby a validation of the reflation narrative) and start worrying about whether the Fed will find itself in the rather untenable position of having to hike aggressively (which would contribute to rate rise) or sit on their hands which, in an environment where inflation pressures are building, would result in the market bear steepening the curve. That, in short, is why inflation is a non-starter despite the fact that we've spent the past nine years trying to engineer it. You want just enough of it to convince everyone that the deflation boogeyman has been banished to the netherworld but not enough of it to make central banks ponder an aggressively hawkish lean.
And so, during a week when the Fed statement was some semblance of hawkish and just as Treasury's borrowing needs are increasingly at a time when there are questions about foreign official demand (think: China), we got a jobs report that showed wage growth picking up materially. That's gas on the fire in terms of the bond selloff and because stocks are now taking their cues from bonds, we ended up on Friday with the second fairly sharp move lower in equities of the week. As I quipped this morning:
If you want a really good laugh, try to imagine someone attempting to explain to Trump why stocks are lower on the heels of a good jobs report…
Well, the "someone" who has to explain that to Trump (assuming the President isn't so preoccupied with figuring out how to get rid of Rod Rosenstein that he hasn't looked at the Dow) is Gary Cohn, who showed up on state television Friday morning to talk about the jobs report against a backdrop of graphics showing all red arrows for the major indices. Here's what he came up with:
Right. And to be fair to Gary, all of that is unequivocally true.
But the problem here is not that rates are "still at historically low levels." The problem is how quickly yields are rising. That's what the market doesn't like. Of course Gary knows that, but he can't say it and even if he could, nobody watching Fox is going to care let alone understand.
What's so sweet about this is the irony. Prior to becoming President, Trump not-so-patiently regaled Joe Kernen with an aggravated takedown of Janet Yellen, who Trump said had created a "false stock market" with artificially suppressed rates. About a month after he said that on CNBC, he reiterated the point in a debate with Clinton. Here, listen to this:
That's right. "We're in a big ugly bubble" and "if you raise interest rates even a little, even that's gonna come crashing down." Probably the best part of that clip is when you freeze frame it so you can capture how he feigns disgust at the whole situation:
You know what? I take back what I said earlier today about Trump maybe not understanding why stocks are falling on Friday. Because he certainly seemed to understand it back in 2016.
Something tells me he won't be tweet-celebrating the worst week for the S&P in two years on the justification that it represents the first welcome step along the road to ridding America of a "big ugly bubble".