Hopefully you enjoyed the market holiday because volatility is serving up some fireworks on Wall Street and likely some lively discussions at the Federal Reserve.
The Chicago Board Options Exchange's CBOE Volatility Index, or VIX, soared upwards of 19% in early trading as the monthly ADP National Employment report came in far stronger than expected with 497,000 private sector jobs added last month, well ahead of Street forecasts of a 228,000 gain.
“What we're seeing says the Fed has more work to do on inflation,” Action Alerts PLUS investing club portfolio manager Chris Versace said in his daily video message to members.
And a major economic datapoint remains on the table as investors await Friday’s monthly jobs report, with many now revising their expectations in an upward direction.
“In the past, when we've seen the sparks like this fly over a harder landing than has been previously expected, we tend to see the market get a little nervous, a little jumpy, a little volatile, if you will. And odds are we're likely to see that unfold again, especially if tomorrow's June employment report confirms ADP's findings,” Versace said
FULL VIDEO TRANSCRIPT BELOW:
CHRIS VERSACE: We're seeing says the Fed has more work to do on inflation.
Setting the stage for today's datapalooza, yesterday, the Fed published the minutes for its last policy meeting in June. And those minutes reaffirmed that the economy indeed has surprised to the upside, and that the Fed so far continues to see a softish landing for the economy. The minutes also show that, yes, the labor market continues to be tight and inflation remains, quote, unacceptably high. Soon after that report was published and in our hands, New York Federal Reserve president John Williams cautioned that inflation and the fight against it is not done.
Now with all of that in hand, coming into today's trading, the market was already readjusting to the notion that the Fed's hawkish stance means there is indeed more work to be done to break the back of inflation. Now today's ADP employment report for June is going to push that view even further. I say that because the report showed far stronger job creation in June than was expected.
By the numbers, 497,000 jobs were created in June alone. That's up compared to the 245,000 that were expected and the 278,000 jobs created in May. Now, yes, we do have to keep in mind that there are some seasonal factors in the June data, including the start of summer jobs. But candidly, even adjusting for that, the June print was far stronger than the expected number. Also, too, ADP's data showed that while there were some progress on wage inflation, it is still a factor keeping inflation sticky.
Again, by the numbers, job stayers in the month of June saw a year-over-year pay increase of 6.4%, while job changers saw pay gains, excuse me, of more than 11%. Now those are really hot numbers and, again, quite a distance from the Fed's 2% target. We will, however, corroborate these findings with the services PMI data out today from S&P Global and ISM. But on its face, the ADP data suggests that we are likely to see a stronger than expected June employment report and a stock market that will need to accept the Fed's stance that up to two more rate hikes are likely this year.
In the past, when we've seen the sparks like this fly over a harder landing than has been previously expected, we tend to see the market get a little nervous, a little jumpy, a little volatile, if you will. And odds are we're likely to see that unfold again, especially if tomorrow's June employment report confirms ADP's findings. And from our perspective, with the market valuation already a little stretched, us approaching some technical resistance, something we talked about in last week's podcast with Carly Garner and again in this week's podcast with Bob Lang, we are going to keep our defensive positions in play, as well as our inverse ETFs.
