"A Keynesian Beauty Contest -- But With No Beauty" (w/ Ed Harrison and Ash Bennington)

TL;DR

U.S. equity market continues to climb despite the smallest monthly growth in non-farm payrolls since March and a dip in labor force participation rate.

Transcript

welcome to real vision it's wednesday december 4th 2020 just after market close in new york this is the real vision daily briefing i'm ash bennington joined shortly by real vision managing editor ed harrison but first with today's stories jack farley thanks ash blessed if it does blessed if it doesn't that seems to be the destiny of the u.s equity ... Read More

Key Insights

• 🐢 The U.S. added the fewest jobs since March, indicating a slow recovery in the labor market.
• 🔬 Labor force participation rate decreased, with 656,000 Americans exiting the labor market in the past month.
• 😮 Despite negative jobs data, U.S. equities rose as investors remain optimistic about the passage of a stimulus bill and the extension of emergency lending programs.
• 👋 While some argue that the weak jobs data is good for stocks, it may be more accurate to say that all news is currently perceived as positive for stocks due to unbridled bullish sentiment.
• 🪡 The cumulative change in jobs since before the pandemic reveals the significant gap in employment that still needs to be filled.
• 🪡 The need for further stimulus is crucial to support the economy and fill the gap in jobs.
• 😮 The rising hospitalization rate due to COVID-19 may lead to more shutdowns and negatively impact the economy.

Questions & Answers

Q: Why did U.S. equities rise despite the weak jobs data?

The market believes that the negative data will push Congress and the Federal Reserve to provide more stimulus, which has been favorable for stock prices in the past. Additionally, there is a prevailing bullish sentiment driving the market regardless of news outcomes.

Q: Will the damage to the U.S. labor market be long-lasting?

Yes, the data shows that every industry in the U.S. employs fewer workers than it did a year ago. This suggests that the economic scarring will endure even after the pandemic is resolved.

Q: What impact will the stimulus bill and emergency lending programs have on the market?

The expectation is that these measures will provide support to risk assets and stocks. Fiscal and monetary authorities have previously demonstrated a willingness to intervene to support the labor market and have been successful in bolstering risk assets.

Q: What is the significance of the rise in 30-year and 5-year Treasury spreads?

The widening spread indicates that investors are selling off safe assets and moving into equity risk, which aligns with the rise in U.S. equities. This suggests a positive sentiment in the market despite the weak jobs data.

Summary & Key Takeaways

• The U.S. added 245,000 jobs in November, the smallest monthly growth since March and well below the median estimate of 460,000. Labor force participation rate decreased by 0.2%.

• Every single industry in the U.S. employs fewer workers than it did a year ago, indicating long-lasting damage to the labor market.

• U.S. equities were up despite the negative jobs data, with investors motivated by the hopes of passing a stimulus bill and extending emergency lending programs.