Our first official post-shutdown jobs number was delivered, and the market has spoken. The headline was 119k new jobs added in September, basically double what the market expected. However, not so fast. August was revised down to 6k, and the unemployment rate ticked still higher to 4.44%, the highest since October 2021.
The first place we look is from the Fed vantage point. A stronger jobs headline does give them breathing room (even if unemployment ticked higher). The futures markets are now pricing in only a 36% chance of a cut for December. That said, the bond market does not seem to care as the 10-year falls to 4.09. This largely seems driven by the compartmentalization of where the jobs increase was derived. Looking at the sectors that benefited from the data, it was focused in Education and Healthcare and Leisure and Hospitality. Construction was a close third, but according to a Bloomberg editorial, it was nonresidential which suggests it may have something to do with AI infrastructure buildouts.
The writing on the wall here seems to acknowledge still broadly based labor weakness (given the negative revisions) but the market playing into the psychology of Powell and him likely seeing this as an opportunity to hold the line. Recognizing there was something for everyone in this release (bulls versus bears), it was a rather benign event, especially considering how far in the review we are looking back (September). The good news is we staved off any catalyst that could have pushed yields above 4.15 and given runway until the next market mover (PCE now being released on December 3 due to the government shutdown), we should expect more range-bound trading from here between the 4.7 and 4.15 range for now.
With Thanksgiving soon to be upon us, liquidity is gearing to drop. Less trading means more volatility, so keep in mind that it is not always about the data, it can also be about momentum. With lower volume, momentum can often be conjured more quickly given the reduction in contrasting trades (buy versus sell). Since we are off the recent highs, it may be a good time to get some deals done. As recent trends have shown, we tend to see some price fading going into late afternoon sessions (another sign of lower liquidity).
Summary:
Jobs Surprise: September added 119k jobs (double expectations), but August revised down; unemployment rose to 4.44%.
Fed Outlook: Strong headline reduces odds of a December cut (now 36%).
Bond Market: 10-year yield dropped to 4.09 despite mixed labor signals.
Sector Gains: Education, Healthcare, Leisure/Hospitality led; Construction tied to AI infrastructure.
Next Catalyst: Expect range-bound yields (4.15–4.7) until PCE release on December 3; low holiday liquidity may boost volatility.
Until next time!