James Hyerczyk
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Investors were expecting a big number and Friday’s U.S. Non-Farm Payrolls report delivered it and then some. It was essentially a reversal of the March 2020 report and sent another powerful message that the U.S. economy is on a strong path to recovery.

Job Growth Booms

The U.S. Labor Department reported job growth boomed in March at the fastest pace since last summer, as increased vaccinations and more pandemic relief money from the government, paved the way for perhaps the greatest economic growth surge in 37 years.

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Market Reaction

Stock futures showed a muted reaction to the numbers, though government bonds yields rose. Wall Street wasn’t open for trading on Friday. March E-mini S&P 500 Index futures were open for a brief time. They extended gains and were up 0.43%. But keep in mind that volume was extremely low.

The bond market was on a shortened day due to the Good Friday observance. However, yields on the benchmark 10-year notes rose to 1.7072%. Two-year Treasury yields rose to 0.1782%.

In the Forex market, the U.S. Dollar Index firmed and was up about 0.16%.

Pent up volatility is likely to strike the market early next week after investors take the weekend to digest the data.

Markets Are About to Go into a Transition

What I mean by, “markets are about to go into a transition”, is that what worked in the recent past may not work anymore. This especially refers to correlations. Specifically, the relationship between yields and stocks, yields and the U.S. Dollar and perhaps yields and gold.

There’s no hard and fast rule to follow, it’s just an observation of a sudden change in the price action that will tell us that conditions are transitioning.

Investors tend to be set in there ways when there is a strong trend. However, when conditions begin to shift, there is often a volatile reaction because trend traders have been caught off guard by the change in the fundamentals.

For example, there was a time when all three stock indexes were moving in the same direction. Then the pandemic hit and growth stocks rallied more than value plays. Then the vaccine rollout began and investors sold growth stocks and bought value stocks of companies that would benefit the most when the economy reopened.

Each time the market transitioned, some investors were caught on the wrong side of the trade. What I am trying to do is give you a reasonable chance to catch the transition before the majority of investors do.

For weeks, we have been trained to believe that rising interest rates are bad for stocks. But this outlook may already be changing. Friday’s jobs report showed the economy had definitely turned for the better. If that’s the case then the chances of a surge in inflation will increase, taking yields higher. But it also means the economy is rapidly improving and that’s good for business.

So when you come to work on Monday, don’t be surprised if you see stocks rise along with Treasury yields. Yes, they can both go up at the same time. This will mean that Wall Street has fully accepted the fact that interest rates will rise as the economy strengthens.

It will also mean that stock market investors don’t view higher yields as a detriment, but rather a sign that the economy is heating up.

My point is, don’t become a robot and start selling stocks just because yields are rising. That ship may have sailed. In other words, investors may have already “transitioned” into another set of fundamentals.

If the theme that professionals have been following changed and you’re still stuck with the old theme, you may be licking your wounds by the end of next week.

Finally, if I had to guess at what the next theme will be about, it’s going to be whether the Fed will be willing to admit it’s wrong and finally announce it will have to change policy sooner than expected. Start watching for articles about that. Remember to be a successful investor, you have to be willing to think ahead of the curve.

For a look at all of today’s economic events, check out our economic calendar.

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