The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
ADP warning?
The May ADP employment data (37k vs 114k est & 60k prior revised from 62k) took S&P futures from +15 to -7. It’s a hint of labor market weakness that briefly prompted markets to wonder about an economic slowdown after all. That concern lasted 15 minutes and the dip-buyers bounced on the drop. The index opened +10 and bounced around gently over the rest of the day. Trading was very quiet, although bond yields fell and Fed Funds cuts jumped to 56 bips for 2025.
ADP has been viewed as the best forecast on nonfarm payrolls data (128k est vs 177k prior), although it always had a margin of error. Lately, it’s been almost completely dismissed as irrelevant. Consensus is that nonfarm is the only number that matters. ADP data currently gets the blessing of the market when it comes in close to the NFP estimate. It gets quickly dismissed when it deviates greatly, like today.
That’s a mistake and at some point ADP will be viewed as a nice tell again. Anyway, the point is that *maybe* nonfarm payrolls on Friday won’t be the bullish layup that markets assume. I think the risk of the event just climbed although the stock market don’t care. The bond market and Fed Funds market did care… but nobody seemed to care about the differences among the markets!
Just goes to show that the equity market is in its own world currently. It will stay there as long as the tape is quiet and/or climbing.
*If* some macro data hits that requires a stock market reaction, well then get ready for all the equity investors to pay attention to bonds and Fed Funds again. That day isn’t today.
And it probably won’t be tomorrow. It might be Friday though.
See you tomorrow.
-Mike
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